Caleb O. Brown
Thousands of Venezuelans regularly protest Nicolás Maduro’s government. Juan Carlos Hidalgo, a Policy Analyst on Latin America at the Center for Global Liberty and Prosperity at the Cato Institute, recalls witnessing the struggle for freedom in Caracas.
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Tom Giovanetti of the Institute for Policy Innovation, who spoke at a Cato event we held earlier this year, has a new essay arguing that intellectual property protection should be included in trade agreements. He makes several points, but I’m going to focus on just one. He states:
[N]umerous studies have found a correlation between higher levels of IP protection and stronger economic growth.
- According to a 2008 OECD [Organization for Economic Cooperation and Development] study, stronger patent rights in developing countries are a significant determinant of levels of foreign direct investment, and also facilitate higher levels of technology transfer.
- A 2012 OECD study found that a 1 percent change in the strength of a country’s IP framework is associated with a 2.8 percent increase in foreign direct investment inflows and a 0.7 percent increase in domestic R&D [research and development].
- And a 2013 study found that R&D spending has grown relative to GDP in developing countries after they adopted the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The study also found that medicines for developing countries had received additional funding, and that the TRIPS agreement had directly contributed to the emergence of native film industries in African countries.
Here’s the problem: If you treat intellectual property as a single concept, and you can either have more or less protection of it, it would be reasonable to conclude that some countries have too little protection and probably need more. But intellectual property covers a lot of ground. To name a few areas, you have copyrights, trademarks, and patents. You also have the European favorite, “geographical indications.”
If the argument is that having intellectual property protection is better than not having intellectual property protection, in terms of economic growth, that seems like an easy one. It’s hard to imagine a modern economy working very well without effective trademark enforcement, for example.
But beyond that, things get complicated. How much protection is too much? The United States is pushing copyright terms that last for the life of the author plus 70 years as part of its trade negotiations. I’ve argued that’s way too long. What is the right amount exactly? Well, no one seems to be sure, as far as I can tell, but there are plenty of people who say life plus 70 years is excessive.
So, it’s not enough just to say, “we need stronger IP protection in trade agreements.” If you want to convince anybody, you need to get into the specifics of each kind of protection, and why the stronger level you propose is justified. Otherwise I’m just going to assume you want stronger IP protection of any and all kinds and would go along with the European Union demand that Feta cheese can only be made in Greece.
Mark A. Calabria
Four times a year members of the Federal Reserve Board are scheduled to meet with members of the banking industry, as represented by the Fed’s Federal Advisory Council. This, of course, does not include all the many other occasions that the Fed meets with bankers. These meetings allow the banking industry to express its views to the Fed on a wide range of issues. Summarized records of those meetings are released to the public. In the most recent meeting, bankers raised, among other topics, the issue of Bitcoin.
While the bankers did not yet view Bitcoin as a viable competitor to their role in the payments system, the bankers did express that Bitcoin “regulation is advisable.” Those soft-hearted bankers expressed a concern that without adquate consumer protections, users of Bitcoin would be vulnerable to fraud and theft. Bankers also suggested, presumably out of a concern for national security, that Bitcoin be subject to the same anti-money-laundering procedures, including Know-Your-Consumer, that banks are subjected to. Bankers explicitly suggested that Bitcoin be subjected to the suspicious activities reports (SARs) that banks must currently file. Personally, this all sounds like an attempt at “raising rivals’ costs” to me.
Interestingly banks also suggested that in “an economy hypothetically dominated by Bitcoin, its finite number (21 million) would prevent the application of traditional monetary policy tools to provide support…” In other words banks are concerned that a Bitcoin world would be one where bank bailouts and assistance were more difficult to achieve. I guess one man’s bug is another man’s feature.
NYU’s Paul Light provides thoughts on government failure in the Wall Street Journal today.
Congress returned to its investigation of the General Motors faulty ignition switch Tuesday with a blistering Senate hearing on the National Highway Traffic Safety Administration’s failure to act. As the House Energy and Commerce Committee concluded on the same day, the agency had more than enough information in 2007 to prevent further tragedy, but gave GM a pass.
Lest anyone think that the neglect was an aberration in an otherwise invulnerable government, the cascade of highly visible failures has been accelerating since the mid-1980s. According to my list of management failures that made the national news over the past quarter-century, the federal government produced an average of 1.5 failures per year from 1986 to 1993, two per year from 1993 to 2001, and three per year from 2001 to today.
Light’s views build on his recent study on the subject, which I discussed in this blog. Light says some nice things about the bureaucracy, which I have not quoted here. But he has documented a long list of failures:
With more aggressive oversight and stronger policy, for example, the Occupational Health and Safety Administration could have prevented the fertilizer plant explosion in West, Texas, last year that killed 13 people. With more effective monitoring of at least two of its watchlists, the intelligence community could have warned the Boston police that there was a potential terrorist duo in the city before the Boston Marathon bombing. With a bit of late-night reading of its own internal reports, the Department of Veterans Affairs could have discovered the VA’s wait-list scandal well before it hit the news. And so it goes, from the flu-vaccine shortages, to the Columbia shuttle disaster, the financial meltdown, the Gulf of Mexico oil spill and the healthcare.gov disaster.
I think a key reason why the federal government is failing more than ever is because it is larger than ever. Light suggests other reasons for the government’s poor performance. Either way, this is an important discussion to have, and I am glad Light is out front documenting the failures and asking some fundamental questions.
Two years after whistleblowers submitted tips to the Commerce Department Inspector General’s office, the United States Patent and Trademark Office (USPTO) is acknowledging extensive timekeeping fraud among its employees. Many employees have reported working more hours and achieving higher levels of production than they actually did in order to secure overtime pay and bonuses.
The Washington Post has the details:
For example, patent examiners are allowed to submit incomplete reviews in order to meet productivity deadlines that ensure their work will be rewarded with bonuses. But the work is not always completed, the officials told congressional investigators.
They also said they believe they have adequate tools to allow managers to make sure the examiners they supervise are working, primarily through e-mail and phone calls. The 32-page review had concluded that many managers feel they have little authority to oversee their employees’ work; examiners have a full day to respond to calls and are not required to log into the agency’s internal Web site, so their bosses do not know if they are at their desks at a given time…
More than 70 percent of the 80 managers interviewed told the internal review team that a “significant” number of examiners did not work for long periods, then rushed to get their reviews done at the end of each quarter. The supervisors were concerned that the practice negatively affected the quality of the work.
After the tips were received, USPTO assigned an internal team to investigate. The team produced a 32 page report detailing the abuse. However, the agency scrubbed the report before submitting it to the inspector general. According to the Washington Post, “top patent officials removed the most damaging revelations from the report, providing the agency’s inspector general with an account half the length and with many potentially embarrassing findings removed.”
The agency now claims that the issue is under control. Workers are required to log into the agency’s remote server while teleworking. Unlike many federal agencies, the USPTO is specifically authorized by the U.S. Constitution, but it still has a duty to spend money wisely.
The Cato Institute’s Center for the Study of Science today kicks off its rapid response center that will identify and correct inappropriate and generally bizarre claims on behalf of climate alarm. I wish them luck in this worthy enterprise, but more will surely be needed to deal with this issue.
To be sure, there is an important role for such a center. It is not to convince the ‘believers.’ Nor do I think that there is any longer a significant body of sincere and intelligent individuals who are simply trying to assess the evidence. As far as I can tell, the issue has largely polarized that relatively small portion of the population that has chosen to care about the issue. The remainder quite reasonably have chosen to remain outside the polarization. Thus the purpose of a rapid response Center will be to reassure those who realize that this is a fishy issue, that there remain scientists who are still concerned with the integrity of science. There is also a crucial role in informing those who wish to avoid the conflict as to what is at stake. While these are important functions, there are other issues that I feel a think tank ought to consider. Moreover, there is a danger that rapid response to trivial claims lends unwarranted seriousness to these claims.
Climate alarm belongs to a class of issues characterized by a claim for which there is no evidence, that nonetheless appeals strongly to one or more interests or prejudices. Once the issue is adopted, evidence becomes irrelevant. Instead, the believer sees what he believes. Anything can serve as a supporting omen. Three very different previous examples come to mind (though there are many more examples that could be cited): Malthus’ theory of overpopulation, social Darwinism and the Dreyfus Affair. Although each of these issues engendered opposition, only the Dreyfus Affair led to widespread societal polarization. More commonly, only the ‘believers’ are sufficiently driven to form a movement. We will briefly review these examples (though each has been subject to book length analyses), but the issue of climate alarm is somewhat special in that it appeals to a sizeable number of interests, and has strong claims on the scientific community. It also has the potential to cause exceptional harm to an unprecedented number of people. This has led to persistent opposition amidst widespread lack of interest. However, all these issues are characterized by profound immorality pretending to virtue.
Malthus’ peculiar theory wherein the claimed linear growth of food loses out to the exponential growth of population has maintained continuous popularity in the faculty lounge for about two centuries. It is, therefore, worth noting that Malthus had no evidence that food supply would increase only linearly. Nor did he have evidence for exponential population growth. Malthus initially went so far as to estimate an e-folding time for population of 25 years, based on the population of North America, and ignoring the role of immigration. Although Malthus, himself, eventually acknowledged these problems, the enthusiasm for his anti-human conclusions remains strong. Neither the green revolution nor the diminution of famine amidst increasing population dissuades them. The fact that Chad is poor and the Netherlands is rich never strikes the believer as odd. Apparently, the growth of cities, the movement of workers from the farm to the city, and, for much of the developed world, immigration, all served to convince people of means that there were too many other people around, and Malthusian theory formed a framework for something they were (and are) eager to believe.
Social Darwinism and its corollary, eugenics, represents another case of a theory without support that was widely accepted with, at times, horrid consequences. Darwin’s “The Origin of the Species” had immense influence. It presented a theory whereby natural selection and what were essentially mutations could account for biological evolution. While it offered valuable insights into the development of finch beaks, it was hardly meant to describe societal evolution. Nevertheless, the notion of ‘survival of the fittest’ applied to society had obvious appeal to those who perceived themselves to be the fittest and who naturally regarded the application as scientifically justified. It was a small step to eugenics which was the counterpart of modern day environmentalism during the first third of the twentieth century, and was supported by all the ‘best’ people (including George Bernard Shaw, Margaret Sanger, Alexander Graham Bell, and Theodore Roosevelt) despite the fact that there actually was a mathematical theorem (the Hardy-Weinberg Theorem) that showed that the impact of eugenics on the gene pool would be negligible. Needless to add, mathematics is of no importance to the ‘best’ people. Malthusian population fears continue to the present, but eugenics was rendered unfashionable by the obvious implications presented by the Nazis.
While science is a common vehicle for such misuse, the Dreyfus Affair shows that other vehicles exist. In 1894, Captain Alfred Dreyfus was accused of passing secret French military information to the Germans. There was, in fact, no evidence to support this accusation. Nevertheless, there was again a strong desire on the part of many people in France to believe the accusation. To be sure, there was the endemic anti-Semitism in France. However, there was also the humiliation of France’s loss in the Franco-Prussian War, and the desire to blame such loss not on the army, but on the perfidy of a group that some considered to be ‘outside’. (The Nazis’ ‘stab in the back’ theory for the German loss in WW1 represents a similar instinct). Dreyfus was tried (several times) and sentenced to Devil’s Island. Prominent Frenchmen (Emile Zola in particular) , incensed by the obvious injustice campaigned for Dreyfus, and the issue literally split France in half (partly because the conflict between Catholics and Secularists also entered the Affair). Dreyfus was eventually exonerated after the identification of the actual spy became undeniable.
The current issue of global warming/climate change is extreme in terms of the number of special interests that opportunistically have strong interests in believing in the claims of catastrophe despite the lack of evidence. In no particular order, there are the leftist economists for whom global warming represents a market failure, there are the UN apparatchiks for whom global warming is the route to global governance, there are third world dictators who see guilt over global warming as providing a convenient claim on aid (ie, the transfer of wealth from the poor in rich countries to the wealthy in poor countries), there are the environmental activists who love any issue that has the capacity to frighten the gullible into making hefty contributions to their numerous NGOs, there are the crony capitalists who see the opportunity to cash in on the immense sums being made available for ‘sustainable’ energy, there are the government regulators for whom the control of a natural product of breathing is a dream come true, there are newly minted billionaires who find the issue of ‘saving the planet’ appropriately suitable to their grandiose pretensions, etc., etc. Strange as it may seem, even the fossil fuel industry is generally willing to go along. After all, they realize better than most, that there is no current replacement for fossil fuels. The closest possibilities, nuclear and hydro, are despised by the environmentalists. As long as fossil fuel companies have a level playing field, and can pass expenses to the consumers, they are satisfied. Given the nature of corporate overhead, the latter can even form a profit center. The situation within science itself is equally grim. Huge sums of government and private funding have become available to what was initially a small backwater field. Science becomes easy when emphasis is on malleable models supported by hugely uncertain data that can be readily found ‘consistent’ with the models supplemented by fervidly imagined catastrophic ‘implications.’ Indeed, uncertainty is often exaggerated for just this purpose. Opposition within the scientific community is immediately met with ad hominem attacks, loss of funding, and difficulty in publishing.
Of course, science is not the only victim of this situation. Affordable energy has been the primary vehicle for the greatest advance in human welfare in human history. This issue promises to deny this to the over 1 billion humans who still lack electricity. For billions more energy will be much less affordable leading to increased poverty. Poverty, itself, is a major factor in reduced life expectancy. It requires a peculiarly ugly obtuseness to ignore the fundamental immorality of this issue.
Although all these issues have strong political consequences, it is by no means clear that their origin is, itself, political. I would suggest that a more likely situation is that politics is always opportunistically seeking some cause that fits its needs. However, once an illusional issue becomes a passionate belief, it becomes impervious to argument. Given how dangerous some illusional positions are, it is an important problem to know how to avoid them. This is a problem that is truly worthy of Cato’s attention. Rapid response can only do so much; belief seems to inevitably trump objective reality when one is free to choose ones narrative.
Caleb O. BrownFreedom of Speech - Why Liberty?
Having the ability to freely exchange ideas creates better governance and stronger communities. Catherine Sevenko describes her time working overseas in Budapest and Moscow and understanding the importance of our First Amendment rights.
Catherine Sevcenko works for the Foundation for Individual Rights in Education.
President Barack Obama is fighting the Islamic State with a coalition without members. What are allies for?
Washington collects allies like most people collect Facebook friends. It doesn’t matter if the new “friends” enhance America’s security. Washington wants more allies.
Yet America’s allies do little for the U.S. Their view is that Washington’s job is to defend them. Their job is to be defended by Washington.
For decades Washington faced down a nuclear-armed power—the Soviet Union and then Russia—to protect the Europeans. The Europeans did essentially nothing for the U.S.
After 9/11 several European states contributed to America’s efforts in Afghanistan and Iraq. Neither invading the latter nor attempting to build a democratic central government in the former made policy sense, but some Europeans sacrificed on behalf of a professed U.S. interest.
However, Washington quickly repaid the favor, underwriting Britain’s and France’s foolish war in Libya. Now the Europeans want Washington to save Ukraine and “reassure” countries to the east. Yet the EU has a larger GDP and population than America.
With the U.S. now calling for assistance against ISIL, the continent has turned more frigid. No one seems interested in joining Washington’s air war, even Great Britain.
Washington’s Asian friends are even less helpful. For decades Japan wouldn’t help U.S. forces, even if they were defending Japan. That is finally changing, but there still is no good reason Washington to stare down the People’s Republic of China to secure Tokyo’s disputed claim to the Senkaku Islands.
Similar is the case of South Korea. The U.S. defended the Republic of Korea during the Korean War and since then has maintained a military garrison, even as the South swept past North Korea economically. Seoul contributed detachments to America’s Afghanistan and Iraq operations, a nice gesture, but little return for decades of protection from unpredictable Pyongyang.
What about allies in the Middle East? Turkey is a member of NATO, but apparently said no to participation in the new grand coalition and even to American use of Incirlik Air Base. This country allowed Islamic State fighters free access to Syria and has far more at stake in ISIL’s defeat than does America.
The Saudis have underwritten radical insurgents in Syria. Yet there are few nations more at risk from the Islamic State. So far the Arab monarchies have committed little to the battle against ISIL.
The U.S. gets little from its many alliances. Washington is expected to confront Russia, China, Iran, North Korea, the Islamic State, Syria, and everyone else to defend a host of Asian, European, and Middle Eastern nations.
Few, if any, are vital to U.S. security. Equally important, most of these nations are capable of defending themselves.
Instead of adding allies, Washington should drop them. Instead of taking on permanent defense obligations to other states, the U.S. should cooperate with other nations on issues of mutual interest.
Instead of promiscuously intervening overseas, American officials should treat war as a last resort. Equally important, the U.S. should stop doing for other states what they can do for themselves.
ISIL is evil, but until now, at least, has not been interested in the U.S. The Islamic State wants to become a traditional government, ruling over a specific territory and population. But so far the countries targeted by the group have fallen short as American allies. As I argue in Forbes online, “They are more likely to act for themselves, but only if they must, that is, they cannot rely on Washington to take on their problems as its own.”
The administration’s non-war war against the Islamic State would be bad in any circumstance. But relying on empty alliances for international assistance exacerbates the potential for failure. A coalition of the threatened should degrade and destroy ISIL.
Cato senior fellow Johan Norberg writes in The Spectator that David Cameron ought to ponder the electoral loss of his friend and fellow “modernizing conservative” Fredrik Reinfeldt in the Swedish election:
It was not that Swedish voters were not impressed with the economy. According to a recent European Commission survey, 97 per cent of Swedes were satisfied with their living standards, a number that would please Kim Jong-un. In the big exit poll, voters said that the Moderates handled the nation’s finances better than any other party. But this success, it seems, was self-defeating. The old law, ‘He who has slaked his thirst turns his back on the well’, seems to have applied. The Swedish Conservatives kindly tidied up the fiscal mess — but why keep the cleaners on after the job is done?
Any country that struggles with financial collapse (and lacklustre recovery) would love to recruit an Anders Borg. But Swedes think they are now out of the woods. They want to talk about other things: the climate, immigration, girl power (the feminist party’s share of the vote rose seven-fold) and the quality of public services.
Reinfelt’s big mistake was to look as if he had finished the job. His coalition seemed out of ideas, with no vision for the future. They had, of course, accomplished most of what they set out to achieve in the first, radical four years — and had also lost their majority in parliament. But the general impression was that they had run out of puff….
Once, it was Reinfeldt who won elections by capturing the imagination and daring to be different. Now, he has played it safe — and lost. Last time, Reinfeldt gave Cameron a masterclass in how to win an election. Now he has given a masterclass in how to lose one.
There’s more, on Sweden’s economic recovery, its remaining problems, the pathetically weak victory of the Social Democrats, and the rise of the populist Sweden Democrats.
Steve H. Hanke
Bitcoin, the new digital currency, remains a mystery to many. There is no better way to lift the fog surrounding bitcoin than to let the data speak. And data speaks loudest through charts. Yes, topological analysis is often the best route to comprehension.
I have constructed – with my assistant, Mazin Al-Rayes – a series of charts that contain illuminating data about bitcoins and brief directions for use following each chart.
How to interpret: Currently there are 13.235 million bitcoins in circulation. The issuance of new bitcoins will halt when the total number of bitcoins “mined” (read: in circulation) reaches 21 million.
How to interpret: This chart shows the total revenue in USD of bitcoin miners (See: the formula at the bottom of the chart for the calculation). A bitcoin miner can be anyone with a computer and a connection to the internet. Miners lend their computers’ processing power to the bitcoin network and are compensated with new bitcoins. Many miners use hardware designed specifically for mining, others simply use their home computers - pooling their processing power via the internet and sharing the rewards.
How to interpret: This chart shows the estimated number of giga-hashes per second that the bitcoin network is performing. It’s clear that the processing power of the bitcoin network increased over time. The hash rate increased for a myriad of reasons: an increased number of miners, collaboration of miners in pools and hardware capacity.
How to interpret: New bitcoins are created at a predictable rate. This rate is a function of both the difficulty level of a bitcoin miner’s mathematical operation and the processing power of a miner’s hardware.
How to interpret: This chart shows the bitcoin market capitalization. This is calculated by multiplying the total number of bitcoins by the market price of a bitcoin in USD.
How to interpret: This chart shows the trade volume in USD from the largest bitcoin exchanges.
How to Interpret: This chart shows the price and volatility of the bitcoin. Volatility is calculated by annualizing the standard deviation of the daily returns of the past 14 days. If the price behavior over the past 14 days remains the same for one year, the volatility charted above can be interpreted as the expected price change range (+ or -) at the end of the year.
How to Interpret: Each day the volatility of bitcoins (as calculated in Chart 7) is plotted against the return on bitcoins that day. In the chart, the number of days above the 0% line is greater than the number of days below the 0% line, because the price of bitcoins has been trending upward since 1 January 2013.
How to interpret: A simple moving average (SMA) is the average of the price over the past X days. When a short-term moving average crosses over and exceeds a long-term moving average, price momentum in the market is accelerating. When a short-term moving average falls below a long-term moving average, price momentum in the market is decelerating.
How to interpret: We have chosen to measure long-term trends with 50- and 100-day simple moving averages, and short-term trends with 10- and 20-day simple moving averages. When the 50-day simple moving average is greater than the 100-day moving average, the long-term position is indicated in red. When the 10-day simple moving average is greater than the 20-day simple moving average, the short-term position is indicated in green.
Peter Van Doren
This week the New York Times featured an article lauding Germany’s embrace of renewable energy in recent years. This came just under a year after it published a separate article questioning the costs of subsidized wind power. The article last year noted that “Industrial users still pay substantially more for electricity here than do their counterparts in Britain or France, and almost three times as much as those in the United States, according to a study by the German industrial giant Siemens. The Cologne Institute for Economic Research said there had been a marked decline in the willingness of industrial companies to invest in Germany since 2000.”
In the first, Jonathan Lesser examines the costs of the Cape Cod wind farms in Massachusetts. Cape Wind prices will be around 21 cents per kWh when it starts production and 35 cents at the end of the contract in 2027. In contrast the market supply is currently around 11 cents per kWh and projected to be 15 cents from 2020 through 2027.
In the second article, Lesser uses data on actual wind generation to demonstrate the perverse economic consequences of the inverse relationship between the availability of wind power (at night in the winter) and the demand for electricity (during the day in the summer).
From January 2009 to August 2012 in three of the areas of the country that account for more than half of the installed wind generation capacity in the U.S.: Pennsylvania-New Jersey-Maryland, the upper Midwest, and Texas, the median wind unit operated only between 26 and 31 percent of the hours in a year and only between 2 and 16 percent of the peak hours in the 10 highest demand days of the year.
Even though renewable power is least available when electricity is in greatest demand, renewable energy subsidies create taxpayer-subsidized competition for existing power generators during other lower-demand times. This reduces the returns of existing generators. The lower returns cause conventional supply to decline and eventually consumer prices increase particularly at peak times because so little wind generation is produced during peak hours.
As my colleague Doug Bandow noted on Cato@Liberty a few days ago, Scottish independence is for the voters of Scotland to decide. And so it should be. But, as I write over at Foreign Policy, U.S. policymakers need to be aware that Scottish independence would carry some key costs for the United States:
- The loss of nuclear submarine basing privileges is the most concrete cost of Scottish independence, with Scotland’s nationalist party pledging a ‘nuclear-free’ Scotland if a Yes vote occurs. U.S. nuclear submarines, though based in King’s Bay, Georgia, use the United Kingdom’s HMNB Clyde Naval Base at Faslane, Scotland for maintenance and deployment needs. The site is located conveniently close to key North Sea patrol waters, and has acted as a visiting port for U.S. submarines since the Cold War. The loss of the base will force the UK to relocate its four Trident submarines, and the paucity of available sites in Europe may eventually lead to UK submarines being based alongside their American counterparts in Georgia.
- The UK and United States also have strong, historical links in intelligence sharing and military cooperation, formalized in the 1946 UKUSA agreement. Intelligence sharing and operational burdens are widely shared; officers on both sides of the Atlantic even refer to each other as ‘cousins.’ But independence could undermine the value of this alliance for the United States, at least in the short term. In the case of a Yes vote, the remainder of the United Kingdom (RUK) will need to rebuild its military and intelligence capabilities, extricating itself from Scotland, and negotiating which military assets will go to which country. During this period, the United States will lose the benefit of British intelligence and military support.
- The breakdown of the UK will also result in the loss of a valuable U.S. supporter on the world stage. The UK is often the only nation which commits substantial levels of troops or financing to joint military or humanitarian operations. While ‘partner states’ like France committed only 88 troops to the War in Afghanistan, the UK contributed 10-15% of total troops to the conflict. In Iraq, the UK was responsible for almost half of the non-U.S. troops involved. The UK also carries its own weight in NATO, contributing between 2.5-3% of GDP in military spending each year, a level few European states achieve. The loss of Scotland will carve up the UK, removing at least 8% of its population and tax base, making it less able to commit to any U.S. initiatives.
The timing could not be worse: achieving consensus on Syria, Ukraine or a host of other issues will be harder in the turmoil of a Yes vote for independence. Whether the United States should be involved in these conflicts is debatable at best, but they will be costly, especially if Britain can’t contribute. An independent Scotland, even without the incipient startup costs of independence, is not going to fill that gap. U.S. policymakers shouldn’t be telling Scotland what to do. But they should be worried. If a Yes vote occurs, the costs will certainly impact the United States
U.S. Customs and Border Protection is the second largest agency within the Department of Homeland Security (DHS). The agency cost taxpayers $13 billion in fiscal year 2014, and its budget is growing quickly. Spending has increased 85 percent in the last ten years, after accounting for inflation.
This chart shows CBP spending since 1970, including its recent meteoric rise.
Regrettably for taxpayers, all of that money is not being spent wisely. The Washington Post recently highlighted one example of egregious CBP spending:
U.S. Customs and Border Protection “vastly overpaid” for an employee housing project near one of its checkpoints in rural Arizona, spending nearly eight times the average price of homes in the area to build each of the units, according to a federal audit.
The 21 agency homes in Ajo, Ariz, cost about $680,000 each, whereas the average price for a home in the city is $86,500, the Homeland Security Office of Inspector General said in a report on Thursday.
Auditors determined that CBP overpaid for the land, added “nonessential items” and ignored recommendations for the types of houses that should be built. A CBP study had called for one-bedroom homes, but the agency instead built two- and three-bedroom units with amenities such as quartz counter tops, three-car garages and stand-alone freezers.
The report concluded that the homes exceeded employee needs, noting that 80 percent of the agency’s field officers own permanent residences in other locations.
“CBP did not effectively plan and manage employee housing in Ajo, Arizona, and made decisions that resulted in additional costs to the federal government,” the report said.
All told, the auditors identified $4.6 million in expenses that “could have been put to better use.” They noted that CBP increased the cost of the project seven times without explaining how the extra funds would be spent.
Ajo, Arizona represents just one of six areas where CBP is building new homes for its agents. The Inspector General’s report calls on CBP to postpone further construction until it gets this wasteful spending under control.
This is one more example to add to the ever-growing list of wasteful federal spending.
Marian L. Tupy
Much has been said about the impact of Scottish independence on British politics. With the predominantly socialist parliamentarians from Scotland gone, the Conservative Party would likely come to dominate British politics for the foreseeable future. The much needed economic reforms and, perhaps, withdrawal from the European Union would become very likely.
What about the impact of independence on Scotland? The breakup of the Czech and Slovak Federal Republic some 21 years ago provides an interesting example.
The 1992 elections produced dramatically different results in the two parts of the former Czechoslovak federation. In the Czech Republic, the election was won by the Civic Democratic Party (ODS) led by Vaclav Klaus. Klaus was a highly regarded former federal Finance Minister, who later became Prime Minister and President of the independent Czech Republic. The ODS was dominated by economic reformers whose main goal was a speedy transition of the Czech Republic from a centrally planned economy to capitalism.
In Slovakia, the election was won by the left-leaning Movement for Democratic Slovakia (HZDS) led by Vladimir Meciar. Meciar, a former communist with who instinctively opposed dramatic economic reforms favored by Klaus, won by promising the increasingly nationalistic Slovaks some type of a confederal arrangement with the Czechs, but not outright independence. Since the HZDS, with support of smaller Slovak National Party, had enough votes to block all legislation in the Federal Parliament, the future of the federation would depend on an agreement between the ODS and the HZDS.
While demanding an increased autonomy for Slovakia, the Slovak leadership did not bother to find out how far the Czechs were prepared to go. The Slovak leadership seemed to believe that the Czechs, who were more emotionally attached to the continuation of the Czechoslovak federation than the Slovaks, would simply accede to whatever demands the Slovaks chose to make. That turned out to be a colossal miscalculation.
The Czechs were determined not to have their economic reforms hindered by the more socialist Slovaks. If the federal government in Prague were to be rendered ineffective by the Slovak veto and thus prevented from reforming the socialist economies of both parts of the federation, then the two nations would have to go their separate ways. As such, the Czechs flatly rejected a confederal arrangement that would provide for a common currency, but autonomy of economic decision-making in the two parts of the federation. As the Czechs saw it, Slovak statism would destabilize the Czechoslovak crown, and thus harm the Czech economic prospects.
The Czechs called the Slovak bluff and the two republics went their separate ways.
It turned out that many of the concerns that the anti-independence Slovaks had were well founded. Slovakia was not ready for independence. Virtually all the ministries of government were in Prague and the Slovaks working there did not return to Slovakia. While the Czechs simply “repainted” the signs on government buildings from “Czechoslovak” to “Czech,” the Slovaks would have to do everything from the scratch.
The Czechoslovak federation was dissolved on January 31, 1993. In the Czech Republic, Klaus introduced his far-reaching economic reforms. The Czech Republic pulled ahead and became one of the early post-communist success stories. Even better, the Czechs no longer had to feel that they were subsidizing their “younger sibling.”
Slovakia, in contrast, suffered years of economic and political decline. Meciar’s style of government became increasingly authoritarian, leading the U.S. Secretary of State Madeleine Albright refer to Slovakia as the “black hole in the heart of Europe.” The Slovak economy remained unreformed. While some of the more lucrative enterprises were sold off to Meciar’s friends (who, in turn, financed his political campaigns), most of the obsolete state-owned firms kept on losing money. By 1998, when Meciar left office, Slovakia was near bankruptcy.
Following the change of government, Slovakia returned to a full-fledged democracy and embraced far-reaching economic reforms. The Slovaks partially privatized their pension system, introduced a flat income tax and reduced regulation. In recognition of those improvements, the World Bank’s “Doing Business in 2005” report declared Slovakia the world’s leading reformer and ranked it among the top 20 countries with the best business conditions. By 2006, the Slovak economy was growing at 10 percent per annum and Slovakia was the world’s largest exporter of cars per capita.
Independence forced Slovaks to realize that they had no one to blame for their misfortunes but themselves. Likewise, the success of the “Tatra Tiger,” as Slovakia came to be known in the mid-2000s, imbued the Slovaks with optimism and confidence. As for the relationship between the Czechs and Slovaks: it has never been better.
Since Scottish devolution in 1997, the socialists in the Scottish National and Labor parties have been busily over-regulating those parts of the Scottish economy that were unfortunate enough to fall under their control. According to the 2010 United Kingdom Competitiveness Index, the region with “the largest fall in relative competitiveness” between 1997 and 2010 was Scotland.
Scotland’s greater statism and, ironically for the birth place of Adam Smith, suspicion of capitalism, is a potent obstacle to reform in England and Wales. It is also a serious danger to economic prosperity north of the border. Sooner or later, Scotland will need to introduce reforms that it would never accept from a Westminster government. The end of the Union maybe a high price to pay for the end of socialism on the British isles, but the rewards from a more robust, long-term economic growth are not negligible either.
Tax Foundation has released a study comparing country tax codes. The “International Tax Competitiveness Index” by Kyle Pomerleau and Andrew Lundeen found that “the United States has the 32nd most competitive tax system out of the 34 OECD member countries.” In other words, the United States is a bad place to invest from a tax perspective.
Factors behind America’s poor score include “the highest corporate tax rate in the developed world” and the fact that we are “one of the six remaining countries in the OECD with a worldwide system of taxation.”
Another cause of our poor score is our high property taxes. Many U.S. jurisdictions impose property taxes not just on land and buildings, but also on business machinery and equipment. These taxes are a strong deterrent to capital investment, and they should be repealed. U.S. state and local governments collect a huge $242 billion a year in business property taxes, according to E&Y.
In an upcoming Fiscal Report Card on America’s Governors, Nicole Kaeding and I mention efforts to cut property taxes on business equipment, including reforms in Indiana and Michigan. I suspect one reason for Detroit’s economic demise has been its very high property tax burden.
Using Tax Foundation data, the chart shows property taxes as a percent of gross domestic product for the 34 OECD countries.
Ryan Ellis highlights some more of the Tax Foundation results here.
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.”
First, a disclaimer. I don’t listen to NPR. “State radio” bugs me. But I have friends who do, and I was bowled over when one sent me a seemingly innocuous story about the search for a pharmaceutical treatment for Amyotrophic Lateral Sclerosis [ALS], the horrific ailment also known as Lou Gehrig’s Disease.
I knew something big was about to happen when correspondent Richard Harris led off with this zinger:
There’s a funding crunch for biomedical research in the United States—and it’s not just causing pain for scientists and universities. It’s also creating incentives for researchers to cut corners—and that’s affecting people who are seriously ill.
Predictably, NPR, itself a federally (and privately) funded creature, said the problem was a lack of funding, even titling the piece, “Patients Vulnerable When Cash-Strapped Scientists Cut Corners.”
Allow NPR its sins, because what’s in the article is one key to a very disturbing trend, not just in biomedical science, but in “most disciplines and countries.” It seems that negative results are systematically disappearing from science. Those words appear in the title of a blockbuster 2012 article by University of Montreal’s Daniele Fanelli, more completely, “Negative Results are Disappearing from Most Disciplines and Countries.”
Memo to NPR: Scientists are always “cash-strapped.” Just ask one. The reason is very simple, and can be illustrated by my area, climate science.
There are actually very few people formally trained at the doctoral level in this field (yours truly being one of them). One reason was that, prior to the specter of anthropogenerated climate change, there wasn’t very much money from the federal government. It was about a $50 million a year operation, if that much. We didn’t have enough research dough.
Now the federal outlay is $2.3 billion. Guess what: we’re all climate scientists now. So ecologists, plant biologists, and even psychologists hitched their wagons to this gravy train. Today’s shocker: we don’t have enough research dough.
What Harris found out about ALS really does apply in a Fanelli-like fashion. It seems that drugs that work fine on mice and rats flop miserably when tested on humans. It turns out that the animal studies were all pretty shoddy.
Story Landis, director of the National Institute of Neurological Disorders and Stroke, explained why. According to NPR, “There is no single answer, she says, but part of the explanation relates to a growing issue in biomedical science: the mad scramble for scarce research dollars.” She went on: “The field has become hypercompetitive,” and NPR added, “Many excellent grant proposals get turned down, simply because there’s not enough money to go around. So Landis says scientists are tempted to oversell weak results.”
“Getting a grant requires that you have an exciting story to tell, that you have preliminary data and you have published”, she says. “In the rush, to be perfectly honest, to get a wonderful story out on the street in a journal, and preferably with some publicity to match, scientists can cut corners.”
According to a research paper published earlier this year, corner-cutting turned out to be the rule, rather than the exception, in animal studies of ALS.
Stefano Bertuzzi, the executive director of the American Society for Cell Biology, says that’s because there is little incentive for scientists to take the time to go back and verify results from other labs;
“You want to be the first one to show something”, he says—not the one to verify or dispute a finding, “because you won’t get a big prize for that.”
Landis noted that “ALS is not the only example of this type of wishful science [emphasis added].” She found similar problems with other drugs for other diseases.
It’s too bad that NPR didn’t then go to Montreal’s Fanelli, because they would have found that similar problems are infecting science everywhere, which is why Cato now has a Center for the Study of Science.
Coming up: I’ll be posting soon on what this does to science itself. Teaser: if there’s little incentive to publish negative results, whatever reigning paradigm is operating in a given field will be very resistant to change. As the Center for the Study of Science’s Richard Lindzen has observed, there has been a remarkable lack of paradigm substitution in overall science as research budgets ballooned. Ironically, the more we spend on science, the more science can be harmed.
Today, a court in Frankfurt lifted the temporary ban on Uber’s ride-sharing service imposed at the beginning of this month. Judges were reportedly sympathetic to the claim brought by Taxi Deutschland, an association of taxi dispatchers. However, Judge Frowin Kurth ruled that Taxi Deutschland had waited too long to file for an injunction. A spokesman for the court said that the case must have been filed within two months of Uber’s ride-sharing service launching in Germany.
Taxi Deutschland claimed that Uber’s ride-sharing service was in violation of legislation prohibiting drivers without a commercial license charging passengers more than the operating cost of a ride.
Although the temporary ban has been lifted the court has not made a judgment on whether Uber’s ride-sharing service is legal in Germany.
Uber has been facing opposition across Europe. In June, London cabbies protested how Uber was being regulated by the city’s transportation agency. In March, Milan taxi drivers held a strike protesting Uber. According to Reuters, Milan’s taxi unions believed Uber was operating illegally:
Milan’s taxi unions say that because the app allows drivers to be summoned while in their car, it violates a 1992 law which describes hired drivers as a service ordered from the garage where their business is based, as distinct from taxis, which can pick up passengers on the move.
The Wall Street Journal reports [$] today that government-run schools are stocking up on military surplus equipment—including M-16 rifles, grenade launchers, and even multi-ton armored vehicles—through a controversial federal program.
In the wake of school shootings in Sandy Hook, Conn., and elsewhere, some school security departments developed SWAT teams, added weapons to deal with any contingency and called on the federal government to help supply the gear. But now the program is facing renewed scrutiny from both outside observers and police using the program.
In south Texas, near the Mexican border, the sprawling Edinburg Consolidated Independent School District has 34,700 students and operates its own SWAT team, thanks in part to military gear it was given in recent years.
The department received two Humvees and a cargo truck from the surplus program, as well as a few power generators, said district Police Chief Ricardo Lopez. The district applied for weapons, too, but wasn’t given any, so instead purchased its own M-4 and AR-15 assault-style rifles, he said.
The Humvees have turned out to be helpful in responding to events such as burglaries at some remote elementary schools on ranchlands, he said, though the 12-member SWAT team hasn’t responded to any major incidents.
They need Humvees to respond to burglaries? And under what conceivable scenario is a grenade launcher needed in a school? At least the officials at L.A. Unified claim that they never intended to put grenades in the grenade launchers:
Some school districts, including the Los Angeles Unified School District, stocked up on grenade launchers, M-16 rifles and even a multi-ton armored vehicle, only to realize the downside of the free gear is the cost to maintain it and train officers to use it.
The district is getting rid of the grenade launchers, which it never intended to use to launch grenades or use in a school setting, said Steven Zipperman, chief of police of the Los Angeles Schools Police Department. The launchers, received in 2001 and classified “as less lethal munitions,” might have been useful to help other police forces in the county disperse crowds by shooting foam or rubber bullets, he said.
Reason’s Zenon Evans reports that officials claim they need the wanna-be tanks “victim rescue vehicles” to extract students from a school shooting:
The L.A. school cops also have a mine-resistant ambush protected vehicle (MRAP), a piece of equipment that often weighs upwards of 14 tons and was designed to fight asymmetrical warfare against Iraqi insurgents, not provide backup during study period patrol. Los Angeles school officers also have 61 M-16 rifles, presumably to prevent food fights from breaking out. The MRAP is worth $733,000 and each rifle is worth $499, but the DoD gives equipment away for the price of shipping.
L.A. cops aren’t the only ones with MRAPs this back to school season. The San Diego Unified School District has one, too. Oakland got stuck with a “tactical” utility truck.
“We recognize the public concern over perceived ‘militarization of law enforcement,’ but nothing could be further from the truth for School Police,” Capt. Joseph Florentino of the San Diego district told NBC yesterday. Apparently, his department is converting it to a “victim rescue vehicle” that will “be designed for us to get into any hostile situation and pull kids out.”
Professor Jay P. Greene of the University of Arkansas cuts right through the absurdity of schools stocking up on military equipment:
This is a toxic combination of 1) school districts lining up for anything the feds are handing out, 2) the excessive militarization of local police (and apparently school security) forces, and 3) schools focusing on incredibly rare events, like school shootings, as opposed to incredibly common ones, like incarcerating millions of children in schools that fail to serve their needs.
Perhaps the U.S. Department of Education could set an example for school districts by dismantling its SWAT team.
The House of Representatives is set to vote on a continuing resolution (CR) tomorrow to fund the federal government until December 11, 2014. A CR is stop-gap measure often used when the parties and chambers cannot agree on a full-year budget.
The CR package, as presented in draft form, is disappointing. It fails to institute much-needed fiscal reforms.
- Spending Levels: The CR keeps the level of discretionary spending constant at $1.012 trillion. Not growing the size of government is a positive step for Congress, but there are plenty of ways to cut and reform spending. As I noted recently, the sooner Congress reforms spending the better.
- Export-Import Bank: The CR extends the Export-Import Bank’s charter until June 30, 2015. Ex-Im subsidizes exports for American companies, but at a large cost to other American firms.
- Internet Tax Moratorium: In 1998, Congress passed a law making it illegal for federal, state, or local governments to impose taxes on internet access, such as bandwidth or email taxes. This moratorium expires on November 1, 2014. The CR extends the moratorium until December 11, 2014, but it does not permanently extend it as previously-passed House legislation would have. This sets up an important tax fight after the congressional elections.
- Overseas Contingency Operations: The supplemental war budget, known as the Overseas Contingency Operations (OCO) budget, provides funding for military activities in Iraq and Afghanistan. OCO funding is supposed to decrease as those activities wind-down. But this CR increases OCO above planned levels. It includes $26 billion, at an annual rate, more than the Obama Administration’s request earlier in the year. One problem with OCO funding is that it is not subject to the same federal budgetary rules and disciplines as other types of spending, which allows Congress to treat it like a slush fund.
In sum, this CR allows members to again punt on any sort of meaningful entitlement reforms or spending cuts to reduce our half trillion dollar deficit.
Airbnb, which allows for homeowners to temporarily rent some or all of their property, is the target of “Share Better,” a New York City-based campaign group launched last Friday which claims that the company worsens the affordable housing crisis, allows for tenants to violate lease agreements, and poses a safety risk to property owners and guests.
Share Better is a coalition of predictable groups: New York state and NYC elected officials, activists, and hotel industry representatives.
The Share Better campaign is a notable example of established market participants (hotels) working to stifle competition. Airbnb has proven popular in NYC, and many New Yorkers believe that the type of short-term renting facilitated by Airbnb should be permitted. A Quinnipiac poll from earlier this month shows that only 36 percent of NYC voters believe that residents should not be “permitted to rent rooms in their homes for a few days at a time to strangers, similar to a hotel.”
Given Airbnb’s popularity some in the NYC hotel industry are understandably concerned. However, some of the claims made by the group are unfounded.
Is Airbnb contributing to NYC’s affordable housing crisis? It’s hard to see how given the number of Airbnb rentals and the number of households in NYC. Airbnb claims that there are approximately 25,000 listings in NYC. In a city of roughly 3 million households it’s hard to see how Airbnb could be significantly contributing to a lack of affordable housing in NYC.
If New York and NYC elected officials and activists are concerned about affordable housing in NYC they should turn their attention to rent controls, which economists almost universally agree are bad policy. As Swedish economist Assar Lindbeck noted, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”
Read Cato’s Policy Analysis “How Rent Control Drives Out Affordable Housing” by William Tucker here.
The Share Better campaign released a video highlighting negative reviews of Airbnb rentals imposed over footage of grim-looking properties. No one who supports the sharing economy claims that every Airbnb experience will be good, just as no one will claim that every hotel visit will enjoyed by every guest. However, given the rise of the Internet it is easy for those interested in staying at a hotel to look up reviews of hotels made by previous guests. Similarly, Airbnb hosts and guests review each other, making it unlikely that a host offering dirty or unsafe accommodation will be able to use Airbnb’s services for long.
Libertarians and Share Better can agree that, if an apartment tenant has signed a lease with a landlord that forbids him from temporarily renting his apartment, he should not be hosting Airbnb guests.