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Trevor Ariza: NBA Champion, Tax Refugee

Mon, 07/14/2014 - 14:52

David Boaz

Do some people think taxes don’t affect economic choices? If so, they should talk to Trevor Ariza and the Washington Wizards. Ariza, a member of the Los Angeles Lakers’ 2009 NBA championship team and “a key part of the Wizards’ playoff run,” has decided to leave Washington and join the Houston Rockets. Why?

Washington was disappointed but hardly shaken when Ariza chose to accept the same four-year, $32 million contract offer in Houston, where the 29-year-old could pocket more money because the state doesn’t tax income.

Yes, a $32 million salary – or indeed a $32,000 salary – goes further in Texas than in the District of Columbia. What economists call the “tax wedge” is the gap between what an employer pays for an employee’s services and what the employee receives after taxes. It causes some jobs to disappear entirely, as employees and employers may not be able to agree on a wage once taxes are taken out of the paycheck. It causes some employees to flee to lower-tax countries, states, or cities. The Beatles, the Rolling Stones, Bono, and Gerard Depardieu are some of the better-known “tax exiles.” Now Trevor Ariza has joined their ranks.

Categories: Policy Institutes

Liberalism and the French Revolution

Mon, 07/14/2014 - 09:13

David Boaz

Twenty-five years ago today I stood on the Champs-Elysees and watched a parade celebrating the bicentennial of the French Revolution, capped off with Jessye Norman singing “La Marseillaise.”

Of course, the French Revolution is controversial, especially among my conservative friends. How should libertarians see it? Three years ago I discussed that topic at FreedomFest and on the Britannica Blog. Here’s some of what I wrote then:

The Chinese premier Zhou Enlai is famously (but apparently inaccurately) quoted as saying, “It is too soon to tell.” I like to draw on the wisdom of another deep thinker of the mid 20thcentury, Henny Youngman, who when asked “How’s your wife?” answered, “Compared to what?” Compared to the American Revolution, the French Revolution is very disappointing to libertarians. Compared to the Russian Revolution, it looks pretty good. And it also looks good, at least in the long view, compared to the ancien regime that preceded it.

Conservatives typically follow Edmund Burke‘s critical view in his Reflections on the Revolution in France. They may even quote John Adams: ”Helvetius and Rousseau preached to the French nation liberty, till they made them the most mechanical slaves; equality, till they destroyed all equity; humanity, till they became weasels and African panthers; and fraternity, till they cut one another’s throats like Roman gladiators.”

But there’s another view. And visitors to Mount Vernon, the home of George Washington, get a glimpse of it when they see a key hanging in a place of honor. It’s one of the keys to the Bastille, sent to Washington by Lafayette by way of Thomas Paine. They understood, as the great historian A.V. Dicey put it, that “The Bastille was the outward visible sign of lawless power.” And thus keys to the Bastille were symbols of liberation from tyranny….

Liberals and libertarians admired the fundamental values [the French Revolution] represented. Ludwig von Mises and F. A. Hayek both hailed “the ideas of 1789” and contrasted them with “the ideas of 1914” — that is, liberty versus state-directed organization.

The Declaration of the Rights of Man, issued a month after the fall of the Bastille, enunciated libertarian principles similar to those of the Declaration of Independence:

1. Men are born and remain free and equal in rights… .

2. The aim of all political association is the preservation of the natural and imprescriptible rights of man. These rights are liberty, property, security, and resistance to oppression… .

4. Liberty consists in the freedom to do everything which injures no one else; hence the exercise of the natural rights of each man has no limits except those which assure to the other members of the society the enjoyment of the same rights… .

17. [P]roperty is an inviolable and sacred right.

But it also contained some dissonant notes, notably:

3. The principle of all sovereignty resides essentially in the nation. No body nor individual may exercise any authority which does not proceed directly from the nation… .

6. Law is the expression of the general will.

A liberal interpretation of those clauses would stress that sovereignty is now rested in the people (like “Governments are instituted among Men, deriving their just powers from the consent of the governed”), not in any individual, family, or class. But those phrases are also subject to illiberal interpretation and indeed can be traced to an illiberal provenance. The liberal Benjamin Constant blamed many of France’s ensuing problems on Jean-Jacques Rousseau, often very wrongly thought to be a liberal: “By transposing into our modern age an extent of social power, of collective sovereignty, which belonged to other centuries, this sublime genius, animated by the purest love of liberty, has nevertheless furnished deadly pretexts for more than one kind of tyranny.” That is, Rousseau and too many other Frenchmen thought that liberty consisted in being part of a self-governing community rather than the individual right to worship, trade, speak, and “come and go as we please.”

The results of that philosophical error—that the state is the embodiment of the “general will,” which is sovereign and thus unconstrained—have often been disastrous, and conservatives point to the Reign of Terror in 1793-94 as the precursor of similar terrors in totalitarian countries from the Soviet Union to Pol Pot’s Cambodia.

In Europe the results of creating democratic but essentially unconstrained governments have been far different but still disappointing to liberals. As Hayek wrote in The Constitution of Liberty:

The decisive factor which made the efforts of the Revolution toward the enhancement of individual liberty so abortive was that it created the belief that, since at last all power had been placed in the hands of the people, all safeguards against the abuse of this power had become unnecessary.

Governments could become vast, expensive, debt-ridden, intrusive, and burdensome even though they remained subject to periodic elections and largely respectful of civil and personal liberties. A century after the French Revolution Herbert Spencer worried that the divine right of kings had been replaced by “the divine right of parliaments.”

Still, as Constant celebrated in 1816, in England, France, and the United States, liberty

is the right to be subjected only to the laws, and to be neither arrested, detained, put to death or maltreated in any way by the arbitrary will of one or more individuals. It is the right of everyone to express their opinion, choose a profession and practice it, to dispose of property, and even to abuse it; to come and go without permission, and without having to account for their motives or undertakings. It is everyone’s right to associate with other individuals, either to discuss their interests, or to profess the religion which they and their associates prefer, or even simply to occupy their days or hours in a way which is most compatible with their inclinations or whims.

Compared to the ancien regime of monarchy, aristocracy, class, monopoly, mercantilism, religious uniformity, and arbitrary power, that’s the triumph of liberalism.

Mark Twain, in A Connecticut Yankee in King Arthur’s Court, reminded us of the reality of the ancien regime: 

There were two “Reigns of Terror,” if we would but remember it and consider it: the one wrought murder in hot passion, the other in heartless cold blood; the one lasted mere months, the other lasted a thousand years; the one inflicted death on ten thousand persons, the other upon a hundred millions; but our shudders are all for the horrors of the minor Terror, so to speak; whereas, what is the horror of swift death by the axe compared with lifelong death from hunger, cold, insult, cruelty and heartbreak? What is swift death by lightning compared with death by slow fire at the stake? A city cemetery could contain the coffins filled by that brief Terror, which we have all been so diligently taught to shiver at and mourn over, but all France could hardly contain the coffins filled by that older and real Terror which none of us has been taught to see in its vastness or pity as it deserves.

Categories: Policy Institutes

Smart Growth Facts vs. Ideology

Mon, 07/14/2014 - 08:46

Randal O'Toole

Debates over smart growth–sometimes known as new urbanism, compact cities, or sustainable urban planning, but always meaning higher urban densities and a higher share of people in multifamily housing–boil down to factual questions. But smart-growth supporters keep trying to twist the arguments into ideological issues.

The choice should be yours: suburbs, or …

For example, in response to my Minneapolis Star Tribune article about future housing demand, Thomas Fisher, the dean of the College of Design at the University of Minnesota, writes, “O’Toole, like many conservatives, equates low-density development with personal freedom.” In fact, I equate personal freedom with personal freedom.

Fisher adds, “we [meaning government] should promote density where it makes sense and prohibit it where it doesn’t”; in other words, restrict personal freedom whenever planners’ ideas of what “makes sense” differ from yours. Why? As long as people pay the costs of their choices, they should be allowed to choose high or low densities without interference from planners like Fisher.

… New Urbanism. Flickr photo by David Crummey.

Another writer who makes this ideological is Daily Caller contributor Matt Lewis, who believes that conservatives should endorse new urbanism. His weird logic is conservatives want people to love their country, high-density neighborhoods are prettier than low-density suburbs, and people who don’t have pretty places to live will stop loving their country. Nevermind that more than a century of suburbanization hasn’t caused people to stop loving their country; the truth is there are many beautiful suburbs and many ugly new urban developments.

Lewis adds, “Nobody I know is suggesting that big government–or the U.N.!–ought to mandate or impose these sorts of development policies.” He apparently doesn’t know many urban planners, and certainly none in Denver, Portland, San Francisco, Seattle, the Twin Cities, or other metropolitan areas where big government in the form of regional planning agencies (though not the U.N.) are doing just that. If new urbanism were simply a matter of personal choice, no one would criticize it.

The real issues are factual, not ideological.

Fact #1: Contrary to University of Utah planning professor Arthur Nelson, most people everywhere prefer low-density housing as soon as they have transport that is faster than walking. While a minority does prefer higher densities, the market will provide both as long as there is demand for them.

Fact #2: Contrary to Matt Lewis, American suburbanization did not result from a “post-World War II push for sprawl” coming from “the tax code, zoning, a federally financed highway system, and so on.” Suburbanization began before the Civil War when steam trains could move people faster than walking speed. Most American families abandoned transit and bought cars long before interstate highways–which, by the way, more than paid for themselves with the gas taxes collected from the people who drove on them. Nor did the tax code promote sprawl: Australians build bigger houses with higher homeownership rates in suburbs just as dispersed as America’s without a mortgage interest deduction.

Fact #3: Contrary to Thomas Fisher, low-density housing costs less, not more, than high-density. Without urban-growth boundaries or other artificial restraints, there is almost no urban area in America short of land for housing. Multifamily housing costs more to build, per square foot, than single-family, and compact development is expensive because the planners tend to locate it in areas with the highest land prices. The relative prices in my article–$375,000 for a 1,400-square-foot home in a New Urban neighborhood vs. $295,000 for a 2,400-square-foot home on a large suburban lot–are typical for many smart-growth cities: compare these eastside Portland condos with these single-family homes in a nearby Portland suburb.

Fact #4: Contrary to Fisher, the so-called costs of sprawl are nowhere near as high as the costs of density. Rutgers University’s Costs of Sprawl 2000 estimates that urban services to low-density development cost about $11,000 more per house than services to high-density development. This is trivial compared with the tens to hundreds of thousands of dollars added to home prices in regions whose policies promote compact development.

Fact #5: Contrary to University of Minnesota planning professor Richard Bolan, the best way to reduce externalities such as pollution and greenhouse gases is to treat the source, not try to change people’s lifestyles. For example, since 1970, pollution controls reduced total air pollution from cars by more than 80 percent, while efforts to entice people out of their cars and onto transit reduced pollution by 0 percent.

Fact #6: Contrary to Lewis, suburbs are not sterile, boring places. Suburbanites have a strong sense of community and are actually more likely to engage in community affairs than city dwellers.

Fact #7: Smart growth doesn’t even work. It doesn’t reduce driving: After taking self-selection into account, its effects on driving are “too small to be useful.” It doesn’t save money or energy: multifamily housing not only costs more, it uses more energy per square foot than single-family, while transit costs more and uses as much or more energy per passenger mile as driving. When planners say smart growth saves energy, what they mean is you’ll live in a smaller house and have less mobility.

Fact #8: If we end all subsidies and land-use regulation, I’ll happily accept whatever housing and transport outcomes result from people expressing their personal preferences. Too many planners want to control population densities and transport choices through prescriptive land-use regulation and huge subsidies to their preferred forms of transportation and housing.

These planners think only government can know what is truly right for other people. Even if you believe that, government failure is worse than market failure and results in subsidies to special interest groups for projects that produce negligible social or environmental benefits.

If urban planners have a role to play, it is to ensure people pay the costs of their choices. Instead, it is planners, rather than economists such as myself, who have become ideological, insisting density is the solution to all problems despite the preferences of 80 percent of Americans for low-density lifestyles.

Categories: Policy Institutes

PolitiFact Oregon "False" Rating of Wehby Claim ... Is False

Mon, 07/14/2014 - 08:35

Jim Harper

I was pleased to get an inquiry from PolitiFact Oregon recently about a controversy I knew nothing about. Alas, I must deny credit to Politifact’s use of the information I provided.

Monica Wehby, the Portland pediatric neurosurgeon challenging Senator Jeff Merkley (D), recently fired on the senator for his support of the Rebuild America Jobs Act (S. 1769 in the 112th Congress).

According to the Politfact Oregon write-up, Wehby described Merkley’s vote for the act as “typical of a Washington insider like Senator Merkley,” saying, “I would have voted no because this legislation would have cost the average American family $1,000 a year while making no significant impact to fix our infrastructure and roads.”

Is the cost figure true? My site WashingtonWatch.com was the source of the number that the Wehby camp used (actually $958.40).

I described the source of the number to the Politifact reporter in some detail:

WashingtonWatch.com does a net present value calculation on CBO scores, calculating as costs the amount that would have to be put in a bank account now to fund future taxes and spending, for example, and as savings the amount that would go into a bank account now based on expected tax reductions and spending cuts. We divide gross amounts by the number of people in the country (according to census figures) and then multiply by the size of the average U.S. family (3.14, if my memory serves). At the end of a Congress, we “freeze” the relevant figures, so the calculation for S. 1769 is based on a discount rate of 3.73%, a U.S. population of 315,085,045, and a national debt of $16,338,243,391,74.

The CBO score for S. 1769 (click “Read an analysis of the bill” on the bill’s page) shows revenues (taxes - a cost) of about $56.8 billion and outlays (spending - a cost) of $56.5 billion. That made S. 1769 a high-cost bill — it proposed increasing both taxes and spending — but it was fairly budget-neutral, increasing the average family’s share of the national debt by only about $40 per average family.

If Wehby claimed that the bill would have cost the average American family about $1,000 in new taxes, I think that is incorrect. It would have cost about $500 per family in new taxes and about $500 per family in new spending.

Wehby’s claim was not that it would cost $1,000 in new taxes, though, as the PolitiFact reporter said to me in his inquiry. It was that the bill “would have cost the average American family $1,000 a year.” That is a correct number, though the reporter did not catch or raise with me that the net present value calculation produces a one-time cost figure—not the cost per-year.

There are arguments against this methodology for calculating costs, which I noted to the reporter:

As the bulk of the revenues would have come from a surtax on people with a modified AGI above $1,000,000, I see an argument that this would not have come from “average families” in the “median” or “mode” sense. But our calculations are literal averages — the arithmetic mean — which is produced by dividing costs among all families in the U.S. That approach makes the most sense for outlays, as funds in the U.S. treasury can be thought of as “owned” by all the people, and expenses should be treated as falling on all of us. The average/arithmetic mean makes less sense when it comes to revenues because they often come from distinct sets of taxpayers, such as the relatively well off.

We use the method of calculating we do because there are upwards of 10,000 bills in every Congress and hundreds get CBO scores. We don’t know of a reliable or accurate way to calculate and report tax or spending incidence at scale — who actually pays and who actually receives tax dollars — in all these bills.

My conclusion: “The statement that the bill would have cost the average family $958.40 according to CBO figures is accurate because taxes and spending are each appropriately treated as costs and ‘average’ refers to the arithmetic mean.”

But that’s not what PolitiFact Oregon reported. To my surprise, I “faulted Wehby’s claim on two counts.”

The first involved the $958.40 figure itself. In reality, [Harper] said, only half of that would come in the form of new taxes. The remainder really doesn’t count since it’s in the form of new spending. And while it could be argued that new spending amounts to a long-term debit, the CBO’s own finding that the bill was budget-neutral negates that point.

I neither said nor implied that spending “really doesn’t count.” It counts. The methodology I use counts it. And, while I pointed out that the bill was relatively budget-neutral, candidate Wehby didn’t make any claim about the budgetary effects of the bill. A bill can cost a lot and be budget-neutral. This one did and was.

The second point that the Politifact report attributed to me “was that ‘average families’ would not have borne the burden of any new costs because language in the bill made clear that it would be financed by a 0.7 percent surtax on millionaires.”

That wasn’t my point at all. Here’s what I wrote to the reporter:

It’s important and relevant to many, though, that the incidence of the taxes would have been on relatively rich people. The $500 in taxes would not have hit the “typical” (median/mode) American or Oregonian family. It’s up to you whether you believe it’s expected in the context of Wehby’s statement to get into tax incidence. You can ding her for that omission if your judgment is that it’s something she should have included.

It’s not something I faulted Wehby for. I called the statement “accurate” and left the question of subtlety around tax incidence to the reporter (thinking to myself, “Yeah, right. A political campaign is supposed to get into ‘tax incidence’…”).

It turns out that what a bill “costs” is hard to figure out when the bill has both revenue and spending measures. I’ve given it a lot of thought over years and come up with a pretty good methodology (explained and caveated at WashingtonWatch.com’s “about” page.) It’s disappointing when this thinking, and the work you put in writing up an issue for a reporter, comes out this badly misunderstood, and your own views mischaracterized.

With regret, I rate Politifact Oregon’s rating of Wehby’s claim False.

Categories: Policy Institutes

Influencing Climate Policy on the Back of a Lame Horse

Fri, 07/11/2014 - 16:25

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.”

———-

While we hate to beat a dead horse, despite our best efforts, it’s apparently still alive and kicking.

It is a horse called “Global Warmed Causes Cold Winters and Therefore We Should Regulate Carbon Dioxide Emissions” and proudly jockeyed by White House science adviser John Holdren. (It is rumored that the horse was sired by “Comply or Die,” the winner of the 2008 Grand National Steeplechase and a favorite among the global warming alarmist crowd.)

Previously, on several occasions, we have pointed out that  Holdren’s view that greenhouse gas-induced climate changes lead to more frequent cold outbreaks (as espoused in this YouTube video produced by the White House during last winter’s frigid cold) is a (dwindling) minority viewpoint. Leading researchers on the topic have made a special point of declaring that the hypothesis is rather unlikely. 

In recent months, new research, in part inspired by last winter’s “polar vortex” excursion southward into the eastern United States,  and the White House-spurred speculation that it was caused by anthropogenic climate change, has hit the scientific press. In each case,  new research has found little evidence in support of Holdren’s contention and a rather lot of evidence to the contrary.

In fact, so much evidence has built up against Holdren that the good folks over at the Competitive Enterprise Institute (CEI) filed a formal request for correction with the White House Office of Science and Technology Policy under what’s known as the federal Data Quality Act.

The CEI petition was, predictably, denied, with the claim that the information in the video did not violate the Data Quality Act because the video only reflected Holdren’s “personal opinion,” not a “comprehensive review of the scientific literature.”

Amen to the latter! But the problem—and a troubling problem at that—is that Holdren’s “personal opinion” carries a lot of weight in the White House and influences federal policy.

For example, in announcing proposed regulations limiting carbon dioxide emissions from existing power plants, EPA Administrator Gina McCarthy said “I’m tired of people pointing to the Polar Vortex as a reason not to act on climate. It’s exactly the opposite. Climate change heightens risks from extreme cold that freezes power grids.”

More evidence of Holdren’s influence is found in this New York Times’ article from last week “Obama Adviser on Front Lines of Climate Fight: John Holdren’s Influence Seen in Obama’s Policies.” According to the Times’ article:

But it also acknowledged a truth: Mr. Holdren has this president’s ear, perhaps more than any White House science adviser in recent memory, at a time when climate change has been thrust to the forefront of national politics and could help shape Mr. Obama’s legacy.

Mr. Holdren’s influence can be seen in many of the administration’s policies, including its biggest on climate change—the plan to cut power plant emissions of carbon dioxide, the main contributor to global warming.

“John was right at the heart” of the deliberations, said the White House chief of staff, Denis R. McDonough.

The topic of Holdren’s views on  global warming, cold outbreaks, and the CEI petition was briefly raised in the article, with little concession by the White House.

In fact, among climate scientists the issue of a link between Arctic warming and cold spells is still far from resolved. The White House Office of Science and Technology Policy, which Holdren leads, said it stood by the accuracy of the video, but added, “there will be continuing debate about exactly what is happening.”

The “debate about exactly what is happening” is becoming decidedly more one-sided (and not in Holdren’s favor).

A prominent study on the topic appeared in the journal Nature Climate Change last month. The paper was written ny the University of Exeter’s James Screen, who  found that cold winter days were actually warming more than not-so cold winter days—with the net result that climate change was leading to less variability in winter temperatures, not more, as would occur under Holdren’s scenario.

[What was left out of Screen’s paper was acknowledgement that we—Knappenberger and Michaels—published nearly the same result 13 years ago! See here for details.]

Accompanying the Screen article was a piece by Eric Fischer and Reto Knutti that explained how the picture relating climate change to winter cold outbreaks was increasingly coming into focus—and showing that climate change should moderate winter weather, not make it more severe. 

The Fischer and Knutti article contains gems like these:

A number of studies proposed that strong Arctic warming and declining sea ice extent caused the jet stream to meander more, thereby making temperatures more volatile and causing more intense cold spells in mid-latitudes of the northern hemisphere. As he reports in Nature Climate Change, James Screen challenges this hypothesis and provides observational evidence for the opposite effect.

and,

In the end, the most powerful argument is the observational evidence and our quantitative physical understanding. Screen demonstrates that despite recent cold winters, cold days have become less, rather than more, extreme.

and our favorite:

What is robust, however, is that the popular picture of a general “global weirding”—of all kinds of weather becoming more extreme and volatile across the globe—is simplistic and misleading.

It’s long is past time for the White House to come clean on all of this and admit that the global warming/polar vortex horse is lame. Hiding this fact unfairly lowers its odds and risks the placement of misguided bets—for example, President Obama’s Climate Action Plan.

P.S.: Weather forecast models for next week—normally the second-hottest week of the year in the eastern United States—are predicting a jet stream orientation that looks a lot like what dominated last winter (i.e., a return of the dreaded “polar vortex”), and far, far below-normal temperatures, especially in the Midwest. We doubt people will mind as much as they did in January and therefore doubt that the White House will declare that the cool (and welcomed) summer weather is “consistent with” anthropogenic global warming.

References:

Fischer, E. amd R. Knutti, 2014. Heated debate on cold weather. Nature Climate Change, 4, 537-538.

Knappenberger, P.C., P.J. Michaels, and R.E. Davis, 2001. Nature of observed temperature changes across the United States during the 20th century. Climate Research, 17, 45-53.

Screen, J., 2014. Arctic amplification decreases temperature variance in northern mid- to high-latitudes.  Nature Climate Change, 4, 577–582.

Categories: Policy Institutes

UberX Launches in South Carolina

Fri, 07/11/2014 - 15:17

Matthew Feeney

Yesterday Uber launched its ridesharing service, UberX, in four cities in South Carolina, offering residents of Charleston, Greenville, Columbia, and Myrtle Beach five free UberX rides each until July 24th. Unfortunately, the San Francisco-based technology company’s move into South Carolina could lead to conflicts with Palmetto State regulators.

According to reporting from Charleston’s newspaper, The Post and Courier, the executive director of the SC Office of Regulatory Staff believes that the main issue is whether the Uber business model would fall under the jurisdiction of the Public Service Commission’s regulatory authority. The Post and Courier mentioned that a taxi company in Charleston has developed its own smartphone app to compete with Uber. However, instead of just trying to offer a better rival service, the company, Yellow Cab of Charleston, is one of several taxi companies in South Carolina that are reportedly discussing calling for legislative action against Uber.

Uber and Lyft, another ridesharing company, have run afoul of regulators in numerous jurisdictions, including Virginia, Pittsburgh, and Ann Arbor, MI.

Lyft, which does not currently operate in South Carolina, announced this week that it would begin operating in New York City despite not having permission from the city’s Taxi and Limo Commission (TLC). Uber is now licensed by the TLC, although like Lyft it did not have TLC approval when it launched in NYC.

Companies in the so-called “sharing economy” do not fit well into existing regulatory frameworks. While Uber and Lyft are competitors to traditional taxi services, they are not taxi companies. Rather, they are technology companies that reduce the transaction costs of a familiar task (giving rides for money). It should not be surprising that existing regulations cannot keep up with such changes in technology.

It remains to be seen how regulators and taxi companies respond to Uber’s expansion into South Carolina. Regulators and lawmakers should consider removing already existing regulations in order to allow for Uber and taxis to compete in a fair and free market. Unfortunately, the history of Uber’s expansion is full of examples of regulators favoring out-of-date legislation over the necessary pro-consumer reforms. 

Categories: Policy Institutes

Bloomberg: "I Don't Think There's Roads" Where Voters Backed Gun Rights

Fri, 07/11/2014 - 09:42

Walter Olson

Michael Bloomberg has now fully completed his transition from un-libertarian but arguably competent New York City mayor to abrasive, polarizing figure-of-fun on the national scene. Having dumped a sizable chunk of his billion-dollar fortune into gun control and nanny-state campaigns around the country, Bloomberg now grants an interview in the upcoming Rolling Stone, where he takes credit for Colorado’s passage of a law restricting firearms liberty and along the way casually insults substantial portions of that state’s population:

In Colorado, we got a law passed. The NRA went after two or three state Senators in a part of Colorado where I don’t think there’s roads. It’s as far rural as you can get. And, yes, they lost recall elections. I’m sorry for that. We tried to help ‘em.

“Where I don’t think there’s roads.” The Colorado media has been having a lot of fun with that one. The two successful recalls were in Colorado Springs (pop. 430,000) and Pueblo (pop. 100,000). It took me about two minutes online to establish that Colorado Springs, best known as home to the Air Force Academy, in fact has a share of residents with graduate degrees that’s 40% above the national average, a figure I believe compares favorably to that of the combined five boroughs of NYC. It has roads, too, as does Pueblo.

Lesson of Mayor Bloomberg’s interview: when people show contempt for your liberty, it can be a sign that they have contempt for you, too.

Categories: Policy Institutes

Ignoring the Law of Supply and Demand

Thu, 07/10/2014 - 17:16

Randal O'Toole

A recent report from Fannie Mae finds that baby boomers are not leaving their comfortable suburban homes for lively inner-city communities with walkable streets. As a news article about the report observes, this challenges the “conventional wisdom that ‘empty nester’ baby boomers would eventually downsize from the homes where they raised families, flocking instead to apartments or condos.”

Rather than conventional wisdom, it would be more accurate to say that this notion was wishful thinking among urban planners who believe more Americans should be packed into high-density “compact cities” where they will get around by foot, bicycle, or transit rather than by automobile. In contrast, demographers have known that populations of virtually all age groups, whether millennials or empty nesters, are growing faster in the suburbs and exurbs than in the cities. After all, the baby boomers’ parents overwhelmingly preferred to “age in place” rather than move when their children left home; why should baby boomers be any different?

Despite this, regional planning agencies all over the country are writing plans that presume America will need no more single-family homes, especially on large lots, and instead will need lots of apartments, condos, or townhouses. Many of these plans effectively zone away the possibility of new single-family homes on large lots while they subsidize construction of high-density housing. For example, the San Francisco Metropolitan Transportation Commission’s Plan Bay Area mandates that 80 percent of all new housing be in high-density urban centers.

To justify these plans, the planning agencies often hire Arthur C. Nelson, the University of Utah urban planning professor who in 2006 predicted that the U.S. will soon have 22 million surplus single-family homes on large lots. Nelson wrote a 2011 report predicting that the Bay Area, which has one of the most acute housing shortages in America today, would have a surplus of nearly 572,000 single-family homes by 2040; Plan Bay Area relied heavily on this report to justify its strict land-use policies.

More recently, the Twin Cities Metropolitan Council hired Nelson to do a similar analysis for its Thrive 2040 plan. “Demand for attached and multifamily housing in the Twin Cities will continue to grow,” trumpets the council’s press release about Nelson’s report on Twin Cities housing. That, of course, is what the Met Council wanted Nelson to “prove,” which is why they hired him. However, his report can’t really justify the Met Council’s plans.

Nelson’s report predicts “a shifting mix of housing products demand for the next 30 years” such that the share of single-family homes on medium and large lots will decline from 37 percent to 26 percent; while homes on small lots will increase from 25 to 33 percent; and townhouses and multifamily will increase from 38 to 41 percent. Based on this, he says, “to meet housing demand by type in 2040 all new residential units will need to be attached options (apartment, townhouse, condominium) or small-lot detached homes.”

That sounds dramatic at first glance. But even if you believe his numbers, most of the change is from medium and large lot to small lot, not from single-family to multifamily, as the Met Council’s press release implies. Multifamily growing from 38 percent to 41 percent is not that big of an increase, and one that could easily be attributed to measurement error.

There are a lot of potential sources of measurement error in Nelson’s report. Most of the report is based on his interpretation of realtor surveys of people’s housing preferences in which lots of people said they wanted to live in “walkable neighborhoods.” Of course, if you ask people, “Would you like to live in a neighborhood where you can walk to shops?” a lot of people will say yes. But if you ask, “Would you prefer spending $400,000 on a 1,000-square-foot condo in a congested, noisy neighborhood or $200,000 on a 2,000-square-foot home on a large lot in a quiet suburb?” few people would pick the condo.

Nelson thinks housing demand is changing because of “sweeping demographic changes” including an aging population, increasing numbers of ethnic minorities, and declining numbers of households with children. Yet, as shown by other studies, his assumption that these groups will necessarily prefer apartments, townhouses, or houses on small lots is not well grounded.

The report’s biggest problem is that Nelson repeatedly uses the word “demand” but apparently does not know what this word means. Demand is not a point, like the 619,000 Twin Cities households that he predicts will want to live in attached homes in 2040. Demand is a relationship between price and quantity, and prices never enter into Nelson’s analysis.

One reason why Nelson may not understand demand is that he seems to be arithmetically challenged in the first place. Page 26 of the report admits that “in the near term, 2020, demand for more homes on larger lots may still seem robust. The overall demand for such lots will increase by about 25,000 between 2010 and 2030—nearly 1,000 units annually.” Whatever you make of this “demand analysis,” 25,000 divided by 20 years is 1,250, not “nearly 1,000.”

A second problem is that the big change that Nelson predicts–a decline in the share of homes on medium and large lots from 37 percent to 26 percent–isn’t carefully measured by most of the surveys Nelson cites. Page 28 of the report notes that, in the surveys that do distinguish between lot size, a “small lot” is a quarter acre or less. Yet when many urban planners talk about small lots in walkable neighborhoods, they typically mean 25’x50’ lots, nearly nine of which would fit on a quarter acre. Do the people who answer vague questions about their housing preferences really understand this difference?

A third problem is that a lot of the data cited in the report have one source: Arthur C. Nelson. The report includes ten figures and thirteen tables, five of each of which say, “Source: Arthur C. Nelson.” The citations don’t even say, “Arthur C. Nelson, [year],” which would allow readers to pick out which of the ten papers in the reference section by Arthur C. Nelson the tables or figures are from. This makes the report even less persuasive than it already is.

Perhaps the most important self-citation in Nelson’s reference section is a 2006 article in the Journal of the American Planning Association where Nelson first predicted the future surplus of single-family homes. The article issued a clarion call to planners to lead the way to prevent this by forcing builders to focus on apartments instead. The Journal was honest enough to attach a critique by University of North Carolina planning professor Emil Malizia that pointed out that Nelson’s predictions were based on unreliable surveys whose results could have been “heavily influenced by the data collection method.”

In sum, Nelson predict fairly small changes in housing preferences, especially between multifamily and single-family, and those predicted changes are based on specious data. Yet based on those predictions, the Metropolitan Council wants to make large changes in the Twin Cities’ housing mix, mainly a large increase in multifamily along its various rail lines. (Did I mention that the Met Council also wants to increase taxes so it can build more rail transit–which in 2012 carried all of 0.3 percent of Twin Cities commuters to work–thus providing rail stations near which it can locate high-density housing?)

The real question is: Just why should regional planning agencies such as the Bay Area Metropoltan Transportation Commission or Twin Cities Metropolitan Council, have anything to do with determining future housing supplies anyway? These agencies were created to hand out federal transportation and low-income housing grants to cities in each region, not to dictate housing choices to a region’s middle-class residents. As Malizia pointed out in his critique of Nelson’s 2006 paper, if people’s preferences change, and housing is left to the market, the market will respond to those changes.

Not satisfied with that, regional planners want to dictate future housing choices by restricting low-density housing and subsidizing high-density housing near rail stations. These policies will make housing less affordable which (perhaps deliberately) will make Nelson’s prediction of an increasing desire for multifamily housing a self-fulfilling prophecy.

Categories: Policy Institutes

How Destroying Fish is Not Like Destroying Financial Records

Thu, 07/10/2014 - 17:03

Trevor Burrus

Overcriminalization is a significant problem in the United States, particularly federal overcriminalization. There are a variety of reasons for this, but one is that federal prosecutors consistently stretch laws to encompass conduct that the law was never meant to cover. Normal people who committed minor infractions will often find themselves facing long prison sentences that are entirely disproportionate to the wrongness of the act. Such is the case in an upcoming Supreme Court case, Yates v. United States.  

While commercial fishing in the Gulf of Mexico, John Yates had his catch inspected by the Florida Fish and Wildlife Commission for whether it complied with size restrictions. Finding some undersized fish, officials cited him for a civil violation and he was ordered to bring the undersized fish back to the docks. Instead, he threw them overboard. While he probably knew he would face a fine, what he could not have foreseen was his subsequent criminal prosecution under the Sarbanes-Oxley Act three-years later.

Sarbanes-Oxley was enacted in the wake of the Enron financial scandal and cover-up. It includes a document shredding provision, Section 1519, that punishes those who knowingly destroy or conceal “any record, document, or tangible object” in order to impede an investigation. To Mr. Yates’s surprise, he was convicted of violating Section 1519 and sentenced to 30 days in prison and three years of supervised release. On appeal, the Eleventh Circuit upheld his conviction by narrowly focusing on the dictionary definition of “tangible object.”

Now, on appeal to the Supreme Court, Mr. Yates asks the Court to overturn his conviction on the ground that he did not have fair notice that the destruction of fish would fall under Section 1519. We agree. In an amicus brief supporting Mr. Yates, Cato argues that well-established canons of statutory construction—that is, the rules that guide judges in interpreting statutes—do not allow Section 1519 to be reasonably interpreted to apply to fish. Those canons teach us that a word in a statute, such as “tangible,” should be given more precise content based on its surrounding words, and that it should only be applied objects similar to the precise words preceding it. In short, the other words in the statute, such as “record” and “document,” modify the term “tangible object” to include things like hard drives and diskettes, not fish.

Moreover, an all-encompassing reading of “tangible object” would render the words “record” and “document” unnecessary. Additionally, the broader context of the Sarbanes-Oxley Act illuminates the meaning of “tangible object.” The Act focuses on financial fraud in the context of companies, not destroying fish. Thus, the words “tangible object” should be read differently in Sarbanes-Oxley than they would be in, say, the Federal Rules of Criminal Procedure. If the term “tangible object” is read as broadly as the Eleventh Circuit’s interpretation, it could potentially criminalize an unfathomable range of activities. As such, it would not provide adequate notice to those who may violate the law. Individuals have a right to fair notice of what conduct is proscribed by the law so they may plan their actions accordingly. Legislatures, not courts, should define criminal activity.

Read Cato’s brief here

Categories: Policy Institutes

Google Co-Founders Sergey Brin & Larry Page: Health Care Regulation Is Blocking Innovation

Thu, 07/10/2014 - 15:51

Michael F. Cannon

At a forum sponsored by Khosla Ventures, Google co-founders Sergey Brin and Larry Page discussed the burden of health care regulations in the United States. When asked, “Can you imagine Google becoming a health company?”, Brin responded:

Health is just so heavily regulated, it’s just a painful business to be in. It’s just not necessarily how I want to spend my time. Even though we do have some health projects, and we’ll be doing that to a certain extent. But I think the regulatory burden in the U.S. is so high that I think it would dissuade a lot of entrepreneurs.

Page agreed:

I am really excited about the possibility of data also to improve health. But I think that’s what Sergey’s saying. It’s so heavily regulated, it’s a difficult area…I do worry, you know, we kind of regulate ourselves out of some really great possibilities.

But surely, the United States does not have government-run health care.

The discussion begins at about 29:00.

Fireside chat with Google co-founders, Larry Page and Sergey Brin with Vinod Khosla
Categories: Policy Institutes

Still No Halbig v. Burwell Ruling, But Plenty of Halbig Chatter

Thu, 07/10/2014 - 14:46

Michael F. Cannon

The latest bit of chatter about a someday-forthcoming ruling from the D.C. Circuit in Halbig v. Burwell is the banter between myself and Washington & Lee University law professor Timothy Jost. (For a quick primer on the Halbig cases, click here. For a comprehensive reference guide to the cases, click here.) Or as my email traffic has described it, “The subtle repartee between Michael Cannon and Tim Jost continues.” And, “What a summer! Argentina vs. Germany, Cannon vs. Jost. What’s next?“ 

Jost’s contribution appeared on the oped page of the Washington Post. Mine…didn’t.

Jost explains that while the Supreme Court’s ruling against the government in Hobby Lobby will not have much of an impact on the Patient Protection and Affordable Care Act, “a number of ACA lawsuits percolating up through the courts could be much more destructive. The theory of these suits seems to be that the drafters of the ACA planted a secret bomb in the heart of the statute.” Jost, along with a federal judge he quotes approvingly, thinks it’s “preposterous” that Congress would have intended to give states the power to block the expansion of health-insurance coverage that’s supposed to happen through the PPACA’s health-insurance “exchanges.”

Never mind that Congress did exactly that with the other coverage expansion – the Medicaid expansion – in the very same bill. Or that Congress has allowed states to block the entire Medicaid program for the past 49 years. Or that that’s how Jost himself proposed Congress could set up the bill’s health insurance Exchanges. Or that in 2009, both Republicans and Democrats introduced legislation that would have conditioned health-insurance subsidies on states establishing Exchanges. Or that, in particular, the other leading bill advanced by Senate Democrats in 2009 also gave states the power to block Exchange subsidies. Or that that’s what Jost admits the plain language of the PPACA “clearly” says.

Forget all that. Following the clear, consistent, uncontradicted language of the statute, which is completely consistent with the law’s legislative history, would be preposterous. Why? Because if the courts implement the law as Congress intended, then not even ObamaCare’s supporters would like how ObamaCare works. 

Categories: Policy Institutes

Subsidies Make Businesses Weaker

Thu, 07/10/2014 - 13:07

Chris Edwards

The technical arguments against the Export-Import Bank are provided in this excellent summary by Veronique de Rugy. However, one argument against Ex-Im and other business subsidies is not stressed enough in policy debates: subsidies weaken the businesses that receive them.

Subsidies change the behavior of recipients. Just like individual welfare reduces work incentives, corporate welfare dulls business competitiveness. Subsidies give companies a crutch, an incentive not to improve efficiency or to innovate, as I noted here.

Yesterday, I looked at Chapter 1 of Burton and Anita Folsom’s new book, Uncle Sam Can’t Count, which examines federal fur trading boondoggles of 1795-1822. 

Now let’s look at Chapter 2, which focuses on the steamboat industry of the 19th century. The historical lesson is clear: subsidies make companies weak, inefficient, and resistant to innovation.

Here is a thumbnail sketch of the Folsoms’ steamboat story:

  • In 1806 New York gives Robert Fulton a legal monopoly on steamboat travel in the state. Breaking this misguided law, a young Cornelius Vanderbilt launches a competitive service in 1817.
  • The U.S. Supreme Court strikes down the New York law in 1824. The effect is to usher in an era of steamboat innovation and falling prices for consumers.
  • Vanderbilt launches many new steamboat routes whenever he sees an opportunity to drive down prices.
  • With subsidies from the British government, Samuel Cunard launches a steamship service from England to North America in 1840. In response, Edward Collins successfully lobbies Congress to give him subsidies to challenge Cunard on the Atlantic route. With this unfortunate precedent, Congress proceeds to hand out subsidies to steamship firms on other routes.
  • By the 1850s, Congress is providing Collins a huge annual subsidy of $858,000. Irked by the subsidies and Collins’ inefficient service, Vanderbilt builds a better and faster ship and launches his own Atlantic service.
  • In 1856 two of Collins’ inferior ships sink, killing almost 500 people. Collins builds a new ship, but it is so shoddy that it is scrapped after only two trips.
  • Congress finally realizes that the aid to Collins is damaging, as it has spawned an inferior and mismanaged business. Congress cuts off the subsidies in 1858. Without subsidies, Collins’ steamship company collapses.
  • Vanderbilt also out-competes subsidized steamship companies on the East Coast-to-West Coast route through Central America.
  • In England, an unsubsidized competitor to Cunard—the Inman Line—is launched and begins out-competing and out-innovating the subsidized incumbent.
  • The subsidized Cunard and Collins aim their services at the high-end luxury market. The more efficient and unsubsidized Vanderbilt and Inman focus on driving down prices for people with more moderate incomes.
  • Government subsidies “actually retarded progress because Cunard and Collins both used their monopolies to stifle innovation and delay technological changes in steamship construction.”

Government subsidies have similar negative effects today, whether it is subsidies to energy companies, aid to farm businesses, or the Ex-Im program.

The difference is that in the 19th century Congress eventually cut off subsidies when the damage became clear, as it did with steamship subsidies in 1858 and fur trading subsidies in 1822. Maybe I’m overlooking something, but I can’t think of a business subsidy program terminated by Congress in recent years, or even in recent decades.  

Categories: Policy Institutes

Bus Shelters for the Poor, Trains for the Rich

Thu, 07/10/2014 - 08:55

Randal O'Toole

Low-income residents of the Twin Cities can rest easy, as planners at the Metropolitan Council, the area’s regional planning agency, are proposing a regional transit equity plan. According to the Metropolitan Council’s press release, this equity plan consists of:

  1. Building 75 bus shelters and rebuilding 75 existing shelters “in areas of racially concentrated poverty”; and
  2. “Strengthen[ing] the transit service framework serving racially concentrated areas of poverty” by building bus-rapid transit and light-rail lines to the region’s wealthy suburbs.

Bus shelters for the poor, light rail for the rich: that sounds equitable! Of course, the poor will be allowed to ride those light-rail trains (for example, if they travel to the suburbs to work as servants), just as the well-to-do will be allowed to use the bus shelters. But for the most part, the light rail is for the middle class.

As with most American urban areas, Twin Cities poverty is concentrated in the core cities. Minneapolis and St. Paul have less than a quarter of the region’s population but more than half of the poor and more than 60 percent of the poor blacks. On average, 23 percent of residents of Minneapolis and St. Paul are in poverty, compared with just 7 percent of their suburbs.

The Twin Cities’ first light-rail line–the blue line on the above map–went to Bloomington, where less than 10 percent of people are considered poor. The next light-rail line, the green line east of “the Interchange” in downtown Minneapolis, connected Minneapolis and St. Paul, but it goes from downtown to downtown through the University of Minnesota and a neighborhood that planners hope to convert into a mixed-use, New Urban community complete with creative-class yuppies, fancy restaurants, and organic supermarkets.

The next line to be built–the green line west of Minneapolis–would go to Eden Prairie, with 9 percent poverty and mean per capita incomes that are eight times the $6,000-per-person poverty threshold for a family of four. Census data indicate that 1,100 poor blacks live in Eden Prairie compared with 48,000 in Minneapolis and St. Paul.

After that will be lines to Lakeland and Lakeville, which have 4 percent poverty rates, mean per capita incomes six times the poverty threshold, and just 340 poor blacks. All the other proposed lines on the map go to suburbs with low poverty rates and high incomes.

Perhaps the only one that comes close to serving many low-income people is the proposed line going northwest from Minneapolis to an area unnamed on the map but which is actually Brooklyn Park. Brooklyn Park’s poverty rate is 11.5 percent including 3,200 poor blacks–more than any other suburb that would be served by the proposed rail or BRT lines but less than 7 percent as many as live in Minneapolis and St. Paul.

According to the 2012 American Community Survey, 13 percent of Twin Cities commuters whose incomes are below the poverty level take transit to work, while 61 percent drive alone and 14 percent carpool. Only 3 percent of Twin Cities workers live in households with no cars, and 39 percent of those drive to work (most of them driving alone, presumably in borrowed cars) compared with 37 percent taking transit. Transit clearly isn’t working for low-income people today, and it’s hard to see how a few bus shelters plus trains to the suburbs will help.

Many if not most Twin Cities suburbs are already served by express buses that are probably faster than the light-rail lines the council wants to build. On the other hand, inner-city neighborhoods tend to be served by local buses that stop frequently and therefore have low average speeds.

Let’s say bus service to the suburbs averages 20 mph and light rail can increase this average to 24 mph. By comparison, bus service in inner cities averages 10 mph and improvements can increase this to 12 mph. Which would save people the most time? Increasing speeds from 20 to 24 mph would cut one-half minute off the time it takes to go one mile, but increasing speeds from 10 to 12 mph would cut a full minute off the time to go a mile. What this means is that, to really improve transit service, transit agencies should concentrate on increasing the speeds of their slowest transit services, not ones that are already fast. That usually means inner-city buses, not suburban lines.

If the Metropolitan Council truly wanted to help low-income people, it would concentrate on improving bus service rather than building light-rail to the suburbs. But the council is apparently more interested in getting federal funds for rail transit than helping the poor. By calling this “transit equity,” it hopes that no one notices how inequitable it actually is.

Categories: Policy Institutes

Kennan on Iraq, June 1944

Wed, 07/09/2014 - 17:07

Christopher A. Preble

Cato hosted a discussion of The Kennan Diaries today. Editor Frank Costigliola read the following entry, from June 1944, which George Kennan wrote during a three-day stop in Baghdad, on his way to Moscow. I can’t help but hear echoes of Colin Powell’s infamous pottery barn warning, and other cautionary notes that went unheeded in the weeks and months before the invasion of Iraq in 2003. And, as further evidence that we haven’t learned the right lessons from Iraq, there are still those wishing that we had never left Iraq, or that we should go back in. They might ponder these words from a man who knew little about Iraq, but who knew his own country all too well.

[The Iraqi] people has now come just enough into contact with Western life so that its upper class has a thirst for many things which can be obtained only in the West. Suspicious and resentful of the British, they would be glad to obtain these things from us…

If we give them these things, we can perhaps enjoy a momentary favor on the part of those interested in receiving them. But to the extent that we give them,…we acquire, whether we wish it or not, responsibility for the actions of the Iraqis. If they then begin to do things which are not in our interests, which affect the world situation in ways unfavorable to our security,…we then have ourselves at least in part to blame, and it is up to us to take the appropriate measures.

Are we willing to bear this responsibility? I know, and every realistic American knows, that we are not. Our Government is technically incapable of conceiving and promulgating a long-term consistent policy toward areas remote from its own territory….

Those few Americans who remember something of the pioneer life of their own country will find it hard to view the deserts of Iraq without a pang of interest and excitement at the possibilities for reclamation and economic development. If trees once grew here, could they not grow again? If rains once fell, could they not again be attracted from the inexhaustible resources of nature? Could not climate be altered, disease eradicated?

If they are seeking an escape from reality, such Americans may even pursue these dreams and enter upon the long and stony road which could lead to their fruition. But if they are willing to recall the sad state of soil conservation in their own country, the vast amount of social improvement to be accomplished at home, and the inevitable limitations on the efficacy of our type of democracy in the field of foreign affairs–then they will restrain their excitement at the silent, expectant possibilities of the Iraqi desert, and will return, like disappointed but dutiful children, to the sad deficiencies and problems of their native land.

 

Categories: Policy Institutes

Police Misconduct -- The Worst Case in June

Wed, 07/09/2014 - 16:12

Tim Lynch

Over at Cato’s Police Misconduct web site, we have identified the worst case for the month of June.  Police officer Ronald Harris tried to rob a woman at the Memphis International Airport.  This was an extraordinary theft.  Harris was trying to steal a bag from an employee of St. Jude Children’s Hospital who was, in turn, delivering the bag to a family. The bag was a gift from the Make-A-Wish Foundation—the organization that grants wishes to terminally ill children.  The bag held several St. Jude t-shirts and a $1500 credit card for the family to use for travel.  Harris followed the St. Jude employee into the airport and then struck a member of the family who tried to stop him from stealing their wish away.  Harris has been suspended pending an investigation and faces a long list of charges. Police misconduct is never good, but plotting to steal the wish from a terminally ill child and their family is just really low.

Full story here.

Categories: Policy Institutes

New York Caps Uber “Surge” Pricing

Wed, 07/09/2014 - 15:05

Peter Van Doren

Yesterday the New York attorney general reached a deal with the company Uber to cap its “surge” pricing during emergencies. The company, which uses an app to summon cars via a user’s smartphone, uses an algorithm that increases prices during periods of high demand, including emergencies and bad weather, to encourage more of its drivers to work. The agreement was reached in accordance with the City of New York’s law against price gouging, passed in 1979.  

Was the agreement a good idea?  In the cover story of the Spring 2011 issue of Regulation, Texas Tech researcher Michael Giberson examines the role of high prices and the resistance to them during emergencies.

Many people object to high prices during emergencies. The use of high prices by Uber after Hurricane Sandy prompted a Time writer to describe Uber’s pricing as “economically sound, ethically dubious.”  Michael Sandel, professor of government at Harvard, is quoted in the Regulation article saying “A society in which people exploit their neighbors for financial gain in times of crisis is not a good society… . By punishing greedy behavior rather than rewarding it, society affirms the civic virtue of shared sacrifice for the common good.”

In response, Giberson argues “If it is admitted that giving merchants the freedom to pick their own prices does a better job than alternative ways of getting goods and services to where they are needed, then interference with that pricing freedom … harms precisely those persons who have been already harmed by the disaster, a result that suggests neither shared sacrifice nor promotion of a common good.”  In addition, he argues it is unfair to “place a particularized obligation to sacrifice on a discrete segment of society, namely merchants. Addressing the particular hardships faced by the poor during emergencies is a task better left to government agencies or charities.” 

Price gouging laws are an attempt to deny the economic realities of emergency situations. Price gouging laws reduce the incentives to provide needed goods and services in areas affected by emergencies and disasters. The cap on Uber’s surge pricing may make its customers happy now, but they may not be so happy when they wait hours for an Uber during the next blizzard, thunder storm, or other disaster. The writer concluded that “Price gouging might, at least in theory, help shrink lines and reduce shortages. But I think most people would rather wait in line than have someone make a windfall profit off their desperation.”  With this agreement we will conduct the experiment to test his theory.

For more on Uber, see the recent blog posts by Cato’s Matthew Feeney and this article from the Summer 2013 issue of Regulation. 

Categories: Policy Institutes

Federal Follies 200 Years before Ex-Im

Wed, 07/09/2014 - 14:01

Chris Edwards

Anyone who thinks that Washington waste is something new should examine the history of the Bureau of Indian Affairs (BIA). This essay discusses the mismanagement, corruption, and failures of the BIA since it was created in 1824.

As early as 1828, Indian expert H. R. Schoolcraft concluded: “The derangements in the fiscal affairs of the Indian department are in the extreme. One would think that appropriations had been handled with a pitchfork … there is a screw loose in the public machinery somewhere.”

By the 1860s and 1870s, New York Times editorials were railing against the “dishonesty which pervades the whole Bureau,” and arguing that “the condition of the Indian service is simply shameful.”

In their recent book, Uncle Sam Can’t Count, Burton and Anita Folsom describe the failure of a major Indian policy even before 1824. Here is the basic story:

• Unhappy that British fur traders were out-competing American traders, Congress appropriated $50,000 in 1795 to create frontier posts stocked with American goods to trade with the Indians for furs.

• These government-run fur “factories” were supposed to earn a return, but they “were so poorly run that many Indians held them in contempt and refused to trade there.” Congress had to heavily subsidize the system to keep it operating.

• Rather than respond to the market demands of the Indians, as private traders did, the official running the government system, Thomas McKenney, tried to push products on the Indians that he thought they ought to have.

• The government set up its trading posts at substantial distances from Indians. By contrast, private fur trader John Jacob Astor had his agents build close relationships with Indians, and he made trading easy for the tribes.

• Astor instituted pay for performance, while the government paid its fur bureaucrats fixed salaries.

• Astor watched international fur markets closely and adjusted his operations and marketing accordingly. The government ignored markets, and simply dumped furs in Washington for auction.

• Thomas McKenney was embarrassed by the government’s falling market share and the huge success of Astor. So, in 1818, McKenney began lobbying Congress to ban private fur traders. When that attempt at monopolization failed, McKenney lobbied to impose large fees on private traders and to boost taxpayer subsidies for the government system.

• Despite a new fee on private traders in 1820, the government system was falling apart because of plunging sales. An official report exposed the huge inefficiencies of the government system, and Congress finally voted to end it in 1822.

Long before Solyndra and the Export-Import Bank, politicians should have learned some basic lessons about why Washington ought to stay out of business. Unfortunately, each new generation of politicians are tempted to believe that enlightened federal planners can run the economy better than businesspeople and markets. Rather than wasting hundreds of thousands of dollars as it did two centuries ago, Congress blows billions of dollars today on new versions of its fur-trading folly.

Categories: Policy Institutes

Convention Center Boondoggles

Wed, 07/09/2014 - 13:52

David Boaz

Every country wants a national airline, and every city wants a glitzy convention center to bring those free-spending conventioneers to town. But the economic analysis doesn’t hold up well in either case. A new book on convention centers should be required reading for any city council thinking of investing the taxpayers’ hard-earned money in another white elephant. This report by Don Bauder in the San Diego Reader is worth quoting at length:

Would you take advice from a gaggle of consultants whose forecasts in the past two decades have been off by 50 percent?

Of course you wouldn’t. But all around the U.S., politicians, civic planners, and particularly business executives have been following the advice of self-professed experts who invariably tell clients to build a convention center or expand an existing one.

A remarkable new book, Convention Center Follies: Politics, Power, and Public Investment in American Cities, published by the University of Pennsylvania Press, tells the amazing story of how one American city after another builds into a massive glut of convention-center space, even though the industry itself warns its centers that the resultant price-slashing will worsen current woes.

The author is Heywood Sanders, the nation’s ranking expert on convention centers, who warned of the billowing glut in a seminal study for the Brookings Institution back in 2005. In this new, heavily footnoted, 514-page book, Sanders, a professor of public administration at the University of Texas/San Antonio, exhaustively examines consultants’ forecasts in more than 50 cities.

Nashville was told its new center would result in 466,950 hotel room nights; it’s getting around 267,000 — “a little better than half [what was projected],” says Sanders in an interview. Philadelphia isn’t garnering even half the business that was promised.

“Getting half the business [that was projected] is about the norm,” says Sanders. “The actual performance is a fraction of what it is supposed to be.”

Yet, in city after city — including San Diego — self-appointed civic leaders listen to and act on these faulty forecasts. In almost all cases, mainstream media and politicians swallow the predictions whole without checking the consultants’ miserable track records….

How can convention centers get away with such legerdemain? Those in the know shut up, and the press, politicians, and public have neither the time nor the expertise to follow the prestidigitation.

How do the consultants get away with being 50 percent wrong most of the time? In my opinion — not Sanders’s — consultants in many fields are paid to provide answers that the people paying the consultants’ bills want to hear. And the people paying those bills are the business community — using taxpayers’ money, of course.

The worst news: “These expansions will keep happening,” as long as “you have a mayor who says it is free,” says Sanders.

More, much more, in the Reader and of course in the book. Free-market think tanks have been pointing out the bad economics behind convention centers – and publicly funded stadiums – for many years. 

Categories: Policy Institutes

Hobby Lobby Demonstrates That Expansive Government Is Religious Liberty’s Worst Enemy

Wed, 07/09/2014 - 11:33

Doug Bandow

The federal government has taken over ever larger swaths of American life, most recently health care.  ObamaCare demonstrates that as state dictates expand, religious liberties recede.

The Supreme Court’s ruling in Burwell v. Hobby Lobby was extremely narrow but also extremely important.  Religious liberty is the first freedom and must be protected from government.

The Founders chose not to create a church-based government.  Previous experiments had turned out tragically for both human liberty and religious faith. 

Religion’s relationship to politics has become more important as politics has swallowed more of American life.  In 1789, the new national government was minuscule.  Moreover, in America’s early days, there was a shared Biblical worldview, if not faith, and a common belief in the value of civil religion. 

However, that world has disappeared.  Today there is little government does not do, pushing ever more aspects of life into the public square.  Equally important, Americans have increasingly divergent views of the transcendent. The First Amendment simultaneously guarantees individuals the right to practice and denies government the right to impose.  There may be no more tortured area of federal jurisprudence. 

But no doctrine appears to adequately take into account the steady expansion of government.  I argue in my new column on Forbes online:  “Since the state not just touches but controls far more of society, it threatens to marginalize religion by creating what Richard John Neuhaus called the ‘naked public square.’  A new approach is necessary to implement the Founders’ vision, protect the spiritual liberty of all, and encourage political peace.”

The prohibition against government promotion of sectarian faith or particular churches should be absolute.  Doing so would be the most unfair, divisive, and contrary to the principles of a free society. 

There should be strong protection from even unintentional infringement of religious practice.  In general, the government’s default position should be to respect liberty.  A serious infringement should require a compelling interest as justification.  Unfortunately, bitter confrontations have increased as government has expanded its role.  As with the Washington’s contraceptives mandate. 

Prudential balancing should determine cases in the expanded public square.   In many instances government involvement—providing services, funding programs, and owning property—can be seen either as establishing religion or protecting free exercise. 

As government moves beyond its core functions, it increasingly threatens Americans’ spiritual beliefs.  Today states and especially the national government intrude in education, health care, charity, employment, social services, job training, and more.  Government prohibitions become, in effect, bans on private expression. 

Of course, allowing manifestations of faith after the state is involved also may challenge those of no faith or different faiths.  Sufficient space is required for all people.  Setting religious parameters for the public square requires careful balancing—and considering how much government is necessary

Lawmakers should minimize state involvement to reduce the need for winner-take-all political decisions.  For instance, government should reduce barriers to private schools and home schooling, which allow people to follow their faith without infringing the beliefs of others. 

Where government is providing money, such as for social services, religious organizations should be able to participate like secular agencies.  At the same time, decisions should be transferred from lawmakers to taxpayers.  For instance, privatizing schools while providing financial support to poor families would reduce conflict over moral education.  Allowing people to take larger tax deductions or credits for charity is better than sending taxpayer funds to social service agencies.

The Hobby Lobby decision was second best.  The best way to prevent misuse of the state by clerics and misuse of religion by politicians is to keep government small.  Until then, Americans will be forced to increasingly call upon the First Amendment and legislation like Religious Freedom Restoration Act, upon which Hobby Lobby as decided, to protect their religious liberty.

Categories: Policy Institutes

North Korea Threatens the World: Washington Should Talk to Pyongyang

Wed, 07/09/2014 - 09:41

Doug Bandow

North Korea has imprisoned one American since 2012 and announced its intention to try two other U.S. citizens recently arrested for “perpetrating hostile acts.”  Having no diplomatic relations with the Democratic People’s Republic of Korea, the Obama administration cannot even inquire as to the prisoners’ welfare. The U.S. should open official ties with the DPRK.

Recognition confirms geopolitical reality rather than validates government policy. Nevertheless, politics long has dominated diplomacy surrounding the Korean peninsula.

Washington and Pyongyang never recognized each other. South Korea and Japan also do not have relations with the North. Throughout the Cold War the Soviet Union and People’s Republic of China did not deal with the Republic of Korea. 

But after the end of the Cold War Russia and then China recognized the South. In contrast, two decades later the allied powers still have not formally acknowledged North Korea’s existence.

After all, the North is building nuclear weapons, developing long-range missiles, conducting a confrontational foreign policy, and violating human rights. But this bill of particulars also largely applied to the Soviet Union, with which Washington maintained official ties throughout the Cold War, and the PRC, with which the Nixon administration opened relations. 

Refusing to talk with Moscow would have been grossly irresponsible because the two nations confronted each other militarily around the globe. Worse, as I point out in my new article on National Interest online:  “The lack of any diplomatic channel between America and the PRC during the Korean War may have expanded that conflict. Beijing had no effective means to warn against the U.S. advance to the Yalu.”

While Pyongyang is not a global power, its activities affect America. Which means there is much for the United States and North Korea to talk about. 

Negotiations obviously don’t guarantee results.  Both multilateral and bilateral discussions have occurred outside of official diplomatic channels.  Most of the deals ingloriously collapsed.

However, the lesson is not that ongoing relations are valueless, but that big agreements are unlikely, whatever the negotiating framework.  For instance, Pyongyang is unlikely to give up its existing nuclear arsenal.  Nevertheless, secondary but still important objectives may be achievable. 

First, treating Pyongyang as a diplomatic equal would meet one of the DPRK’s longstanding demands.  Second, sitting down with North Korea might help moderate the regime’s natural paranoia. Third, more regular discussions would help American officials better understand the Kim regime. Fourth, routine contacts would allow talks to develop informally over time.

Of course, Washington might find itself disappointed on all counts. But even a negative result would be an important lesson for America, and even more so for China, which has pressed Washington to engage North Korea. 

No doubt, critics would complain that initiating diplomatic ties was a “reward” for the North. However, as the world’s dominant power, America could afford to make such a faux concession. 

Moreover, opening a small mission would be less embarrassing than having to periodically send Bill Clinton or Dennis Rodman to the North to rescue jailed Americans. And simply having a small window into North Korean society would be useful. 

Now is a propitious moment for Washington to move.  The DPRK remains heavily dependent on China, which evidently makes the former uncomfortable. With PRC-ROK relations improving—President Xi Jinping recently visited Seoul—the North has been looking elsewhere.  It is talking to Tokyo and rebuilding ties with Russia. 

Washington should offer North Korea another alternative. Critical issues divide the two nations, of course, but they do not prevent diplomatic footsie. Present policy obviously is not working.  Why not try something else?

The Obama administration should offer to talk with North Korea. Doing so might change nothing, but that would be no worse than the status quo and the results just might surprise.

Categories: Policy Institutes

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