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Individual Liberty, Free Markets, and Peace
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Voting Themselves Bigger Budgets

Mon, 06/16/2014 - 09:06

Randal O'Toole

An implicit principle in a democracy is that the officials who decide how your taxes are spent represent you, the taxpayers, and not the bureaucracies that receive your taxes. But Congress violated this principle when it wrote MAP-21, the 2012 transportation law. As detailed in a proposed rule earlier this month, the law gives transit agencies in major urban areas a vote on how much of each region’s transportation dollars are spent on transit.

State legislatures are made up of people elected by various voting districts, not representatives selected by the state departments of transportation, justice, welfare, fish & wildlife, parks, and other bureaucracies. Similarly, city councils are made up of people elected by the voters in that city, not by representatives selected by the various water, transportation, fire, and other bureaus.

In 1962, Congress mandated that urban areas of 50,000 people or more create metropolitan planning organizations (MPOs) that would decide how to spend federal transportation and housing funds. At that time, it recognized this principle, specifying that the governing board of each MPO consist of elected officials from the various cities and counties in that urban area. While this was one step removed from the voters, it at least insured that the voters had an indirect say over how their money is spent.

However, MAP-21, the 2012 law reauthorizing federal transportation funding (including funding for MPOs), departed from this principle by requiring that transit agencies in all urban areas with 200,000 or more people be given representation on the MPO boards. In other words, the bureaucrats themselves will get to vote on their own budgets.

Some might think that it is unfair that transit agencies get a vote on MPO boards but highway and street agencies don’t. In fact, it is unfair for any agency to have votes on the boards that help determine their own budgets.

Others might argue that transit agencies are a part of the community and deserve to have a say on the future of that community. But they already have a say through the city councilors and county commissioners elected by the people of the urban area, which includes most transit agency staff and employees (except those who commute from outside the region). Giving transit agencies their own seat on the MPO board violates the one-person, one-vote rule established by the Supreme Court in the 1960s.

We wouldn’t be happy if the NSA got to have a seat on a Congressional committee investigating NSA spying on American citizens or one determining NSA budgets. We wouldn’t be happy with oil companies having a seat on Congressional energy committees, or if university athletic departments got an automatic seat on a state higher education committees, or if a pavement company got an automatic seat on a city council’s transportation committee. Why should transit agencies get an automatic seat on the board determining transit’s share of federal and regional funding?

MAP-21 specified that the requirement that transit agencies have a seat on MPO boards go into effect by October 1, 2014. But MAP-21 itself expires on September 30, 2014. So Congress has the opportunity to redress this problem when it writes a new law to replace the current one.

Given a divided Congress, observers expect Congress will simply extend the current law with a few minor changes. But MAP-21 itself was simply an extension with, supposedly, a few minor changes.

If those who believe in the principles of representative government demand it, Congress could easily remove this provision from the law and specify that any transit (or other) agency officials already on MPO boards be taken off those boards immediately. Removing this conflict of interest is a small change compared with what fiscal conservatives might like to see done with federal transportation law, but it needs to be done to maintain the integrity of public decision making.

Categories: Policy Institutes

Suppressing Competition from Migrant Doctors

Mon, 06/16/2014 - 09:04

Jeffrey Miron

The claim for physician licensure is that it protects consumers from “quacks;”  it is just a coincidence that licensure also reduces competition and raises doctors’ incomes!  In this case, the strength of licensing should be similar across states, and licensure requirements should determine whether a prospective doctor is competent, not whether a U.S. native or a migrant.

Recent research by Brenton Peterson, Sonal Pandya, and David Leblang (University of Virginia), however, finds the opposite: 

Licensure regulations ostensibly serve the public interest by certifying competence, but they can simultaneously be formidable barriers to entry by skilled migrants. From a collective action perspective, skilled natives can more easily secure sub-national, occupation-specific policies than influence national immigration policy. We exploit the unique structure of the American medical profession that allows us to distinguish between public interest and protectionist motives for migrant physician licensure regulations. We show that over the 1973–2010 period, states with greater physician control over licensure requirements imposed more stringent requirements for migrant physician licensure and, as a consequence, received fewer new migrant physicians. By our estimates over a third of all US states could reduce their physician shortages by at least 10 percent within 5 years just by equalizing migrant and native licensure requirements.

Little evidence suggests that professonal licensure promotes quality or protects the public, but arbitrary discrimination against migrant physicians (many trained in the United States!) is particularly insane.  As are all restrictions on high-skill (or other) immigration.

Categories: Policy Institutes

Obama Understands the Improving State of Humanity

Mon, 06/16/2014 - 09:03

Stephanie Rugolo

On Wednesday, President Obama stated an irrefutable fact: the state of humanity is better than any time before. He said,

…if you had to choose any moment to be born in human history, not knowing what your position was gonna be, who you were gonna be, you’d choose this time. The world is less violent than it has ever been. It is healthier than it has ever been. It is more tolerant than it has ever been. It is better fed than it has ever been. It is more educated than it has ever been. Terrible things happen around the world every single day but the trend lines of progress are unmistakable.

This is merry news, especially since he is helping to spread the message of Cato’s new website, HumanProgress.org. And who could help to spread it faster than the leader of the free world?

His understanding of the reasons for improvements in human well-being is unclear, though he seems to imply that people, left to their own devices, will try to improve their lot:

(T)he trend lines of progress are unmistakable. And the reason is because each successive generation tries to learn from previous mistakes and push us, the course of history, in a better direction.

The President is correct in recognizing that progress is most commonly realized when people are left free to pursue their enlightened self-interest. Consider the following examples:

Life expectancy and economic freedom were both higher in Venezuela than in Chile in the 1970s. As Venezuela became less economically free and Chile became more economically free, Chile caught up with Venezuela and eventually overtook it. Today, life expectancy in liberal Chile is higher than in socialist Venezuela.

Consider also China’s reforms: As China embraced free market policies, its poverty rate has plummeted.

Obama did his young audience a service in teaching them that the world is the best it has ever been. These massive improvements were the result of no one’s intention, other than the intention to better one’s own life through free markets. Look no further than North and South Korea, East and West Germany, and Taiwan and pre-reform China for evidence of the power of free markets to create sustainable development.

Categories: Policy Institutes

Paul Martin: The Bill Clinton of Canada, Only Much Better

Fri, 06/13/2014 - 16:18

Daniel J. Mitchell

Imagine how weird it would be if the Cato Institute and Americans for Tax Reform praised Barack Obama for fiscal responsibility. And think how inconceivable it would be for the Heritage Foundation and the National Taxpayers Union to applaud Tim Geithner for economic stewardship.

The Canadian version of that happened while I was at the conference of the World Taxpayers Association in Vancouver two weeks ago.

The event was organized by the Canadian Taxpayers Federation and the main speaker was Paul Martin of the Liberal Party, who served as finance minister from 1993 to 2002, and then as prime minister from 2003 to 2006. I should add, for context, that the Liberal Party in Canada is not a classical liberal party with a track record of free markets and small government.

But Paul Martin was honored because he was responsible, while finance minister, for one of the best records of fiscal restraint of any policymaker in recent history (click here for international comparisons).

I’ve pointed out that the burden of spending fell under Bill Clinton, and I’ve even acknowledged that the federal budget hasn’t grown much under Obama, at least once you get past his first couple of years. But Paul Martin was far more frugal. And since Canada has a parliamentary system, there’s no ambiguity about who deserves credit. He restrained spending when his party had control.

What happened to generate the good results? For all intents and purposes, he imposed a spending freeze. And I’m talking a nominal spending freeze, not the kind of fake fiscal discipline you get when politicians make “cuts” off an inflated baseline. Because the budget was successfully restrained, that addressed both the problem of too much spending and the symptom of red ink.

In his speech, Martin won me over when he bragged that the burden of government spending fell to its lowest point in 50 years. My man-crush on him became even more pronounced when he said his administration allowed agencies to ask for more funds, but only if they identified offsetting cuts elsewhere. What a novel concept! A government that actually looked at tradeoffs and prioritized outlays. Sort of like a household or business.

I asked the former prime minister a couple of questions. I was specifically interested in why the Liberal Party didn’t behave like other left-wing parties and raise taxes to enable bigger government. Martin said there were some in his party who wanted that approach, but that there were two reasons why he instead chose to follow good policy.

First, enough people understood that Canada has a spending problem rather than a revenue problem. And second, there was concern that financial markets would react poorly if policymakers simply pushed for higher taxes and ignored the size of government. I wish the average Republican had the same sophisticated understanding of fiscal policy.

No wonder Canada got such good results. They imposed austerity on the public sector, rather than trying to squeeze the private sector (a distinction that seems to escape Paul Krugman).

To give you an idea of what Paul Martin accomplished, here is a video, prepared by the Canadian Taxpayers Federation, that features laudatory comments by representatives of major market-oriented think tanks. At the risk of stating the obvious, I don’t think there will ever be a video like this about Obama.

The video is very well done, even though I think it focused too much on red ink and not enough on the real accomplishment of spending restraint. On that issue, Chris Edwards has produced some very good data on what’s happened to the burden of government spending is his home country. And for further information on the topic, here’s my video on international examples of spending restraint. Canada, you’ll notice, is one of the prominent case studies.

P.S.: If you know any Keynesians, you can have some fun by asking them why Canada’s economy grew when the burden of government spending was reduced.

P.P.S.: It’s also very impressive that Canada has one of the lowest levels of welfare spending of any developed nation.

P.P.P.S.: No wonder Canada now ranks above the United States for economic freedom, and the freest jurisdiction in North America is actually a Canadian province.

P.P.P.P.S.: To end on a humorous note, Canada should fortify its border to avoid an influx of American leftists.

Categories: Policy Institutes

Remembrances of Prof. M.A. Adelman

Fri, 06/13/2014 - 15:19

Steve H. Hanke

As Peter noted, M.A. “Morry” Adelman—a great economist, mentor, and friend—passed away last month at the age of 96. The first paragraph of The New York Times obituary (June 8, 2014) had this to say of Professor Adelman’s passing.

Morris A. Adelman, an energy economist who marshaled free-market principles and hard data in arguing that the world’s oil supply was not running out, died May 8 at his home in Newton, Mass. He was 96. The Massachusetts Institute of Technology, where he taught and researched for 65 years, announced the death on May 15.

I first had the pleasure of meeting Morry in June of 1967, shortly after I had joined the faculty at the Colorado School of Mines. The Rocky Mountain Petroleum Economics Institute had convened a meeting at Mines; Morry was one of the speakers on a star-studded program. I had been invited to edit a book, Essays in Petroleum Economics, of the conference papers.

As a rookie facing what was, at the time, an array of the most notable petroleum economists in the world (Adelman, Richard Gonzalez, Minor Jameson, John Lichtblau, Milton Lipton, Wallace Lovejoy, Stephen McDonald, James McKie, and Frank Young), I was, to put it mildly, anxious. But, thanks to the likes of Adelman, that problem was quickly put to rest.

Morry knew how to mentor young rookies. He also knew more about the oil industry–even the institutional details–than most of the conference representatives from the industry. He was not only a master of applied economics and detailed, sharp pencil work, but was an economist with a personality–a very sharp wit, very sharp indeed. This wit and his personality come through loud and clear in his writings. So, Morry remains with us, fortunately.

As I reread “Trends in Cost of Finding and Developing Oil and Gas in the U.S.”, which was Adelman’s chapter in Essays in Petroleum Economics, I am struck by just how careful he was to protect his text–a master of rhetoric, too. He paid the most careful and anxious attention to stressing that he was not making predictions, but only presenting short-term projections. As for intermediate projections, beyond 1980, Adelman thought (in 1967) they “only were of minor interest.” And “projections past the year 2000 are funny because it is better to laugh than to weep in the vain presumption of thinking we can see that far ahead.”

That said, Adelman’s chapter does suggest that he had what turned out to be very clear ideas about the possible long-run scenarios:

Nobody can tell what will happen either to energy demand or supply. All we need mention are a decisive breakthrough on: shale oil extraction, or direct finding of conventional crude oil, or coal conversion to liquids, or nuclear power, particularly the fast breeder reactor, or the fuel cell and other methods of energy conversion, not to mention the electric automobile. A major change in any one of these would put altogether new perspectives on developments in oil supply and cost.

Ever since my first encounter with Morry, I benefited from his generous mentoring and his many writings on petroleum economics. This really came home to roost in 1985, when, while retaining my post as a professor of applied economics at The Johns Hopkins University, I became the chief economist at the Friedberg Mercantile Group in Toronto. By late 1985, we were very short crude, as well as the Saudi riyal and the Kuwaiti dinar. We predicted that OPEC was about ready to collapse and that the price of crude would fall to below $10 per barrel. We ended up being right in a big way, when oil collapsed to below $10 per barrel in April of 1986 and both the Saudi riyal and the Kuwaiti dinar devalued shortly thereafter. My writings supporting those trades: “The Unravelling of OPEC: Crude Calculations” (Nov. 17, 1985) and “A Crude Roller Coaster” (Dec. 15, 1985) appeared in Friedberg’s Commodity and Currency Comments, a monthly publication. My analyses rested firmly on Adelman’s pioneering works.

A few years later, I wrote another Friedberg’s piece that was pure Adelman. It illustrates how property rights can be worked into the analysis of extractive industries like oil and gas (“Crude Oil: Take the Money and Run”, Friedberg’s Commodity and Currency Comments, Feb. 15, 1987). This, in part, is what I wrote:

Governmental spokesmen and financial analysts have been oversupplying us with atmospherics about the new OPEC agreement. To redress this imbalance, we offer some crude analytics.

The economic production rate for oil is determined by the following equation: P – V = MC, where P is the market price of a barrel of oil, V is the present value of a barrel of reserves, and MC is the marginal recovery cost of a barrel of oil.

With this simple model for the economics of depletable resources, we demonstrate that for Saudi Arabia–which has 35% of OPEC’s capacity and holds the key to any viable cartel arrangement–oil in the ground is not worth more than money in the bank. In fact, for the Saudis to maximize the value of their oil resources, they should dramatically increase the rate at which they liquidate their oil reserves.

To understand the economics that might force the Saudis to increase their production, we must understand any forces that might tend to raise the Saudis’ (and other producers’) discount rates. To determine the present value of a barrel of reserves (V in our production equation), we must forecast the price that would be received from liquidating a barrel of reserves at some future date and then discount this price to present value. In consequence, when the discount rate is raised, the value of reserves (V) falls, the gross value of current production (P – V) rises, and increased rates of current production are justified.

When it comes to the political instability in the Middle East, the popular view is that increased tensions in the region will reduce oil production. Economic analysis suggests that the tensions will actually work to increase oil production.

Let’s suppose that the real risk-adjusted rate of discount, without any prospect of property expropriation, is 20% for the Saudis. Now, consider what happens to the discount rate if there is a 50-50 chance that a belligerent will overthrow the House of Saud within the next 10 years. In this case, in any given year, there would be a 6.7% chance of an overthrow. This risk to the Saudis would cause them to compute a real risk-adjusted rate of discount, with the prospect of having their oil reserves expropriated. In this example, the relevant discount rate would increase to 28.6% from 20% (See the accompanying table for alternative scenarios). This increase in the discount rate will cause the present value of reserves to decrease dramatically. For example, the present value of $1 in 10 years at 20% is $0.16, while it is worth only $0.08 at 28.6%. The reduction in the present value of reserves will make increased current production more attractive because the gross value of current production (P – V) will be higher.

Thank you Morry. We miss you.

Categories: Policy Institutes

The D.C. 'Fitness Tax' in Context

Fri, 06/13/2014 - 14:49

Nicole Kaeding

An important local story in Washington, D.C. this week is the D.C. City Council’s proposed tax overhaul package. The package would restructure the tax code and reduce revenue by $67 million a year. Unfortunately, special interests may be poised to defeat generally good, pro-growth reform.

The proposal passed 11–2 on its first reading. It was the byproduct of months of study and debate. Under the plan, income tax rates would be cut, which would benefit middle-income residents. The standard deduction would be increased, particularly benefiting lower-income residents. The DC Fiscal Policy Institute estimates that middle-income families with incomes between $50,000 and $75,000 would save an average $400 annually.

It also would lower the corporate tax rate from 9.975 percent to 8.25 percent by 2019, while cutting the “death tax” and eliminating some wasteful tax credits.

These changes would provide much needed relief to D.C. residents and businesses, and make D.C. a little more competitive with its neighbors.

To partly offset the loss in revenue, the city council decided to expand the sales tax base to include some currently untaxed services, such as carpet cleaning, beautician services, and storage facilities. It would keep the sales tax rate at 5.75 percent, lower than Maryland and Virginia. 

However, one particular service industry is trying to sink the entire deal. The sales tax base expansion would include fitness services, such as gym and yoga studio memberships. One gym, Vida Fitness, is leading the charge against the “D.C. Fitness Tax,” urging customers and D.C. residents to sign a petition opposing treating fitness services like most other retail goods and services. Contrary to what Vida Fitness and others say, this isn’t a new tax only affecting their industry; it is simply the expansion of the general sales tax base to include their industry’s products.

I’m not in favor of new taxes, but it is also not fair that gyms are exempt from sales taxes that hit most other retailers and their customers. As Wes Rivers of the DC Fiscal Policy Institute described it, “D.C. residents already pay sales tax on exercise equipment, running shoes, and yoga mats.” Twenty-two states include fitness services in their sales tax bases.

Middle-income residents will save more in income taxes than people will pay in increased sales taxes on gym memberships. Many of those taxpayers likely belong to gyms and yoga studies, so Vida Fitness’ opposition may hurt its customers more than it helps.

The city council should go further in cutting tax rates, but this package is a good first step. It moves D.C.’s tax code a little away from the income tax and towards the consumption tax, which is a more fair and efficient tax structure. Hopefully, policymakers won’t let special interests derail a generally pro-growth reform in D.C.

Categories: Policy Institutes

(Not News) Obama Opposed to Sending U.S. Troops Back into Iraq

Fri, 06/13/2014 - 13:22

Christopher A. Preble

It is good to know that President Obama is opposed to sending U.S. troops into Iraq, though hardly surprising. (I was shocked to hear a reporter ask the president after his remarks if he was reluctant to do so. How could he not be?)

As Chuck Todd noted today on MSNBC, and here, 59 percent of Americans believe that the war in Iraq was not worth it. Does anyone seriously believe that a well-crafted Obama sales pitch could convince a majority of Americans to change their minds? I don’t.

Among the many maddening aspects of this story—and there are many—I’m most frustrated by the claim that the United States should have left a residual force in Iraq after 2011. There are actually three problems with this claim. First, it is NOT a partisan issue. Bush attempted to negotiate a deal that would have left forces in Iraq, and failed. Obama tried, and failed. The claim that one or the other failed because he didn’t try hard enough is just foolish. A sufficient number of Iraqis didn’t want U.S. troops to stay there (albeit for different reasons) that the failure to achieve a status of forces agreement (SOFA) can hardly be blamed on either Bush or Obama for a lack of effort.

So what these people are really saying is that we should have left U.S. troops in Iraq without a SOFA, in the face of Iraqi opposition. We are told that the troops left behind wouldn’t be engaged in combat, so they really wouldn’t have been in danger. That is what Sen. John McCain (R-AZ) said on MSNBC just after the president’s statement. I think this ignores that the U.S. presence was a source of violent resistance in the first place, so it is hard to see how U.S. troops wouldn’t have been subject to at least the risk of regular attacks.

Besides, SOFAs do not protect U.S. troops  from security threats, but rather from the vagaries of foreign justice systems. So it is easy to see how a peaceful, non-threatening, U.S. military operation–e.g., a roadblock searching for bad guys–can turn south in a hurry. Maybe a husband and wife fail to stop at the roadblock, and they are shot. Maybe they are killed. Without a SOFA that extends standard legal protections to U.S. servicemen, the troops manning that roadblock would be subject to Iraqi justice, forced to stand accused of murder before Iraqi judges. Is that really what Senator McCain and others want? We don’t leave U.S. forces in foreign countries without a SOFA for a reason.

Lastly, the claim that a residual force would have convinced Iraqi Prime Minister Nouri al-Maliki to govern better/more inclusively, and that a residual force today might do the same (although McCain allowed today that Maliki might simply need to be replaced; by whom he did not say) ignores that a far larger force, including some of the largest concentrations of U.S. troops in 2008 and 2009, did NOT convince Maliki to cut deals with his political opponents and stab his political supporters in the back. So why would anyone think that a smaller force would have succeeded, or would succeed now?

The breakup of Iraq that many predicted before the war may now be happening. Maybe the country will be partitioned—an idea that previously was ridiculed. Maybe the Iraqi military will turn things around and crush the insurgency. I don’t know whether any of these things will happen. But I will go out on a limb and predict that the U.S. military won’t be sorting out these things. And for that, we should all be grateful. 

Categories: Policy Institutes

A Tale of Two Studies

Fri, 06/13/2014 - 13:14

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.”

———-

A week ago, the White House released a report on the health consequences of global warming that was meant to supplement and reinforce the heath benefit claims made during the roll-out of new Environmental Protection Agency regulations aimed at reducing carbon dioxide emissions from existing power plants.

Those claims, which border on the bizarre, were met with a great deal of pushback—and deservingly so. 

The supplemental White House report didn’t make things better. Take for example, how they handle extreme heat events and heat-related mortality.

To say that we are disappointed with how the White House/EPA presents the data on heat-related mortality is an understatement. No matter how many times we point out—through official means, op-eds, blogs posts, etc.—that they are mishandling the data to such an extent that they present the opposite conclusion from that reached in the scientific literature, it never gets better.

In fact, it seems to be getting worse.

Below the jump, in its entirety, is the section on heat waves from the new White House report, The Health Impacts of Climate Change on Americans:

 

Figure 1. Observed U.S. temperature change (source: White House report).

Notice that there is not a single study cited that links changes in heat waves to changes in heat-related mortality. Instead, it is strongly implied that increasing heat will lead to increasing deaths. We can’t think that any reader would reach the opposite conclusion given the White House discussion and presentation. And yet, that is precisely the case that scientific study after scientific study finds. Despite rising heat, fewer American’s die from heat-related causes (when properly adjusted, of course, for population increases and changes in age stricture).

But such information is nowhere to be found in the White House report. Instead, the section on extreme heat events shows a map of temperature trends across the United States and then goes on to say that extreme heat causes death, leading the readers to a false conclusion.

Here is a similar but more complete presentation from a scientific study looking at trends in temperature and trends in heat-related mortality across the United States.

Figure 2. Annual heat-related mortality rates (excess deaths per standard million population on days in which the decadal-varying threshold apparent temperature (AT) is equaled or exceeded) by city and decade, and long-term trend in summer afternoon AT. Each histogram bar indicates a different decade: from left to right, 1960s–1970s, 1980–1989, and 1990–1998. Decades without histogram bars exhibit no threshold ATs and no heat-related mortality. Decades with gray bars have mortality rates that are statistically significantly different from the decades indicated by black bars. The average excess deaths across all 28 cities is shown at the lower left. AT trends are indicated beneath each city abbreviation (from Davis et al., 2003).

The map in Figure 2 shows trends in summer time apparent temperature (AT)—a combination of heat and humidity—indicated by the small symbol under each city and explained by the right-hand legend. It indicates basically the same thing as the White House map—that summer temperatures are on the rise across the country. But this map also superimposes the trends in heat-related mortality on the trends in temperature (the bar charts for each city).

What it shows is that annual heat-related mortality was on the decline across the United States from the mid-1960s through the late 1990s (the end of the data used in this study). More recent studies confirm that the downward trend in heat-related mortality has continued even in the face of rising temperature (can you say “adaptation”?).

This more complete presentation of the data tells the exact opposite story than the one that the White House (mis)leads you to believe.

You have to ask yourself why the White House finds it necessary to lead you away from the best science in order to drum up support for its energy policies (another example here).

References:

Bobb, J.F., R.D. Peng, M.L. Bell, and F. Dominici. “Heat-Related Mortality and Adaptation in the United States.” Environmental Health Perspectives, 2014. Online at http://dx.doi.org/10.1289/ehp.1307392.

Davis, R.E., P.C. Knappenbergre, P.J. Michaels, and W.M. Novicoff. “Changing Heat-Related Mortality in the United States.” Environmental Health Perspectives 111: 1712–18 (2003).

Kalkstein, L.S., Greene, S., Mills, D.M., and Samenow, J. “An Evaluation of the Progress in Reducing Heat-Related Human Mortality in Major U.S. Cities.” Natural Hazards 56(1): 113-29 (2011).

Categories: Policy Institutes

The Rush to Expand the VA

Fri, 06/13/2014 - 13:01

Nicole Kaeding

The Senate voted 93-3 on Wednesday to expand health care spending for veterans. Under the Senate bill, veterans would be able to access health care services from facilities outside the Department of Veterans Affairs (VA) system.

The headlines from the last few weeks clearly illustrate the need to reform this massive system, but the Senate’s rushed plan would dramatically increase veterans’ health care spending without tackling needed fundamental reforms.

Just before the vote, the Congressional Budget Office (CBO) released a preliminary estimate of the bill’s costs. Because of the hurried nature of introduction and debate, CBO was not able to fully review and estimate costs.

CBO says that the new program would increase spending by $35 billion over 10 years. But that doesn’t tell the full story. CBO expects initial set-up of the new program would take several years with veteran enrollment ramping up over time. And the bill just authorizes the new spending until 2016. So it appears that the CBO estimate of $35 billion just includes the cost over the first three years.

Over the longer term, CBO estimates that added annual spending would be $50 billion a year. So if the current bill is enacted and the added spending extended in the future, it would raise federal spending by about $385 billion over the next decade, as illustrated in the chart below the jump.

 

The $385 billion figure is likely conservative because it assumes that costs stay flat over time. But as more veterans enroll and health care costs increase, the figures could grow larger. CBO says that its estimates are “highly uncertain,” which is one reason why the Senate’s rush to push the bill through was so irresponsible.

The VA is already the fifth largest federal agency. If the new spending is made permanent, VA’s total budget would grow by about one-third and VA health care spending would roughly double.

During debate on Wednesday, several senators raised concern over the dramatic increase in VA spending without any offsetting cuts, but 75 senators swiftly brushed it aside. Allowing any debate about large expansions of government is apparently out of style in the Senate. But what’s needed in the VA is fundamental restructuring, not an ill-planned gusher of new spending.

Political crises are always the most dangerous time for the growth of government. The VA crisis is proving to be no different.

Categories: Policy Institutes

The Story Of Detroit, In Three Observations

Fri, 06/13/2014 - 10:44

Walter Olson

1) In the city of Detroit, more than one violent crime per day now takes place at a gas station. Specifically, reports the Detroit News, “Police have investigated nearly 700 violent crimes at Detroit gas stations during the past year, prompting city officials and citizen patrol groups to try to quell the steady beat of murders, carjackings, shootings and armed robberies.”

2) The Detroit city government does an astoundingly poor job of protecting gas stations, their customers, and pretty much everyone else from crime. It suffers from notoriously poor police response times (58 minutes for serious crimes) and closure rates on crime investigations (8.7 percent rate of solving cases). According to Motor City Muckraker, the Detroit Police Department has quietly discontinued putting out its “Major Crime Summary Report” and instead now puts out a summary report of cases that have resulted in arrests, which is better for its image.

3) The city council’s response? It’s to load new legal burdens on the gas stations, specifically by way of “a recent ordinance requiring owners to install security cameras by Aug. 31.” While some stations say they’re already doing that, Auday Arabo, the head of a dealer association, says the requirement “would present a financial hardship for many station owners”: “Is this what government is supposed to do? Mandate you become the surveillance company for the government?”

That’s certainly what Detroit seems to be doing. Strange how when governments fail utterly at their claimed core function of preventing violence, they so often can be found muscling into entirely new areas of coercion at the same time.

Categories: Policy Institutes

Department of Homeland Bureaucracy

Thu, 06/12/2014 - 15:02

Chris Edwards

The programs, regulations, and laws that define most federal activities are so numerous and complex that it strangles effective governance. The Department of Homeland Security (DHS) is no exception. During the Hurricane Katrina disaster, DHS officials were in a fog of confusion, overwhelmed by events and all the complicated emergency rules and procedures.

A key marker of excess bureaucracy is the generous use of acronyms. In government, acronyms are used to identify the building blocks of bureaucracies, such as agencies, committees, programs, job titles, procedures, rules, and systems.

Recently, I’ve looked at aid-to-state programs run by the Federal Emergency Management Agency (FEMA), which is part of DHS. Acronyms abound at FEMA. To get a sense of the bureaucracy, I looked for acronyms in this 84-page Funding Opportunity Announcement (FOA) for one of FEMA’s many aid programs.

Below is a list of all the bureaucratic structures that were capitalized and had acronyms in this document for one program. Actually, I left out some common acronyms that many people already know, including OMB, FBI, CDC, CBP, EIN, DOT, EMS, IED, FTE, MSA, DOL, GIS, FCC, TDD, and NIST. So the list below mainly includes specialized acronyms that workers in this policy area would need to know. Many of the acronyms refer to government structures that have their own lengthy documents full of acronyms.

H.L. Mencken said “The true bureaucrat is a man of really remarkable talents. He writes a kind of English that is unknown elsewhere in the world, and he has an almost infinite capacity for forming complicated and unworkable rules.”

DHS must be full of “true bureaucrats” because by the time I read to the end of this document, I had counted 113 acronyms. That is an impressive achievement in True Bureaucratic Excellence (TBE).

Bureaucratic Structures with Acronyms in the FOA for the HSGP
Homeland Security Grant Program (HSGP)
State Homeland Security Program (SHSP)
Urban Areas Security Initiative (UASI)
Operation Stonegarden (OPSG)
Threat and Hazard Identification and Risk Assessment (THIRA)
State Preparedness Report (SPR)
National Preparedness Report (NPR)
Information Bulletin (IB)
Investment Justification (IJ)
State Administrative Agency (SAA)
Emergency Management Assistance Compact (EMAC)
National Incident Management System (NIMS)
Federal Emergency Response Official (FERO)
Federal Information Processing Standards (FIPS)
Comprehensive Preparedness Guide (CPG)
Post-Katrina Emergency Management Reform Act (PKEMRA)
Law Enforcement Terrorism Prevention Activity (LETPA)
Environmental Planning and Historic Preservation (EHP)
Border Patrol (BP)
Federal Financial Report (FFR)
Biannual Strategy Implementation Report (BSIR)
Initial Strategy Implementation Plan (ISIP)
Strategic Implementation Plan (SIP)
Planning, Organization, Equipment, Training, and Exercises (POETE)
Grants Program Directorate (GPD)
Grant Adjustment Notice (GAN)
Centralized Scheduling and Information Desk (CSID)
Unified Reporting Tool (URT)
Data Universal Numbering System (DUNS)
System for Award Management (SAM)
Grant Reporting Tool (GRT)
Statewide Communication Interoperable Plan (SCIP)
Statewide Interoperability Coordinator (SWIC)
Statewide Interoperability Governance Board (SIGB)
State Hazard Identification and Risk Assessment (HIRA)
Critical Operational Capability (COC)
Enabling Capability (EC)
Information Sharing Environment (ISE)
Training and Exercise Plan (TEP)
Homeland Security Exercise and Evaluation Program (HSEEP)
Training and Exercise Planning Workshop (TEPW)
National Exercise Scheduling System (NEXS)
After Action Report/Improvement Plan (AAR/IP)
Public Health Emergency Preparedness (PHEP)
Assistant Secretary for Preparedness and Response (ASPR)
Hospital Preparedness Program (HPP)
Senior Advisory Committee (SAC)
Port Security Grant Program (PSGP)
Nonprofit Security Grant Program (NSGP)
Transit Security Grant Program (TSGP)
Area Maritime Security Committee (AMSC)
Regional Transportation Security Working Group (RTSWG)
Homeland Security Advisor (HSA)
Emergency Management Agency (EMA)
Emergency Medical Services for Children (EMSC)
Cities Readiness Initiative (CRI)
Baseline Assessment and Security Enhancement (BASE)
National Capital Region (NCR)
Community Emergency Response Team (CERT)
Integrated Planning Team (IPT)
Emergency Systems for Advance Registration (ESAR)
Volunteer Health Professional (VHP)
Metropolitian Medical Response System (MMRS)
Cyber Security Framework (CSF)
Citizens Corps Program (CCP)
Core Capabilities Tool (CCT)
National Terrorism Advisory System (NTAS)
National Emergency Communications Plan (NECP)
Logistic Management Directorate (LMD)
Operational Pack (OPack)
Western Hemispheres Travel Initiative (WHTI)
Driver’s License Security Grant Program (DLSGP)
National Infrastructure Protection Plan (NIPP)
High Intensity Drug Trafficking Area (HIDTA)
National Crime Information Center (NCIC)
Integrated Automated Fingerprint Identification System (IAFIS)
Fusion Liaison Officers (FLO)
National Disaster Recovery Framework (NDRF)
National Emergency Family Registry and Locator System (NEFRLS)
National Emergency Medical Services Information System (NEMSIS)
Regional Resiliency Assessment Program (RRAP)
Communications Assets and Mapping (CASM)
Nationwide Public Safety Broadband Network (NPSBN)
National Counter-IED Capabilities Analysis Database (NCCAD)
Multi-Jurisdictional IED Security Planning (MJIEDSP)
Corrective Action Plan (CAP)
Continuity of Operations/Continuity of Government (COOP/COG)
Medical Reserve Corps (MRC)
Volunteers in Public Service (VIPS)
National Preparedness Directorate (NPD)
Technical Assistance (TA)
Authorized Equipment List (AEL)
Center for Domestic Preparedness (CDP)
Critical Infrastructure Protection (CIP)
Field Intelligence Group (FIG)
Joint Terrorism Task Forces (JTTF)
Office of Emergency Communications (OEC)
Personnel Reimbursement for Intelligence Cooperation and Enhancement (PRICE)
Bomb-Making Materials Awareness Program (BMAP)
Responder Training Development Center (RTDC)
National Training and Education Division (NTED)
National Domestic Preparedness Consortium (NDPC)
Rural Domestic Preparedness Consortium (RDPC)
Emergency Management Institute (EMI)
Point of Contact (POC)
Single Point of Contact (SPOC)
Training Point of Contact (TPOC)
Maritime Security Risk Analysis Model (MSRAM)
Transportation Worker Identification Credential (TWIC)
Urban Area Working Groups (UAWG)
Emergency Operation Plan (EOP)
Tactical Interoperable Communications Plan (TICP)

Categories: Policy Institutes

Dave Brat on Free Trade

Thu, 06/12/2014 - 12:02

Simon Lester

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

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

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

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

A couple noteworthy things about this response.

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

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

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

Categories: Policy Institutes

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

Wed, 06/11/2014 - 12:39

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

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

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

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

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

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

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

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

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

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

0.018°C to be exact.

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

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

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

*********

* Details and Additional Information about our Calculation

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

 

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

 

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

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

Categories: Policy Institutes

Tea Party Discovers Eric Cantor's Record on Federal Spending

Wed, 06/11/2014 - 12:14

David Boaz

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

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

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

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

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

Categories: Policy Institutes

London Cabbies Hold Uber Regulation Protest

Wed, 06/11/2014 - 12:11

Matthew Feeney

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

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

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

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

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

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

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

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

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

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

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

and,

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

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

Categories: Policy Institutes

Eric Cantor’s Website

Wed, 06/11/2014 - 11:27

Chris Edwards

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

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

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

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

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

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

 

Categories: Policy Institutes

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

Wed, 06/11/2014 - 09:41

Andrew J. Coulson

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

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

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

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

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

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

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

Los Angeles' Confused Suit against Mortgage Lenders

Wed, 06/11/2014 - 08:48

Mark A. Calabria

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

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

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

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

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

Categories: Policy Institutes

Measuring Misery in Latin America: More Dollarization, Please

Tue, 06/10/2014 - 16:27

Steve H. Hanke

In my misery index, I calculate a ranking for all countries where suitable data from the Economist Intelligence Unit exist. My misery index — a simple sum of inflation, lending rates, and unemployment rates, minus year-on-year per capita GDP growth — is used to construct a ranking for 89 countries. The table below is a sub-index of all Latin American countries presented in the world misery index.

A higher score in the misery index means that the country, and its constituents, are more miserable. Indeed, this is a table where you do not want to be first.

Venezuela and Argentina, armed with aggressive socialist policies, end up the most miserable in the region. On the other hand, Panama, El Salvador, and Ecuador score the best on the misery index for Latin America. Panama, with roughly one tenth the misery index score of Venezuela, has used the USD as legal tender since 1904. Ecuador and El Salvador are also both dollarized (Ecuador since 2000 and El Salvador since 2001) – they use the greenback, and it is clear that the embrace of the USD trumps all other economic policies.

The lesson to be learned is clear: the tactics which socialist governments like Venezuela and Argentina employ yield miserable results, whereas dollarization is associated with less misery.

Categories: Policy Institutes

California Judge Strikes Down Teacher Tenure/Dismissal Laws

Tue, 06/10/2014 - 15:41

Andrew J. Coulson

A superior court judge has ruled in Vergara v. California that the state’s laws regulating tenure, dismissals, and last-in-first-out layoffs are all unconstitutional. The judge ruled that these laws impede administrators’ efforts to improve the quality of the teaching workforce, and that the harm falls disproportionately on poor, minority students. Naturally, the reformers who brought and supported the suit are elated.

The decision will almost certainly be appealed, but even if it is upheld it seems to me unlikely to accomplish as much as its supporters hope. I wrote about the reasons why in a piece earlier this year, concluding that:

Lawsuits can redress specific legal wrongs, like compelled segregation, but they can’t produce educational outcomes that require the coordination and relentless dedication of thousands or even millions of people, year after year.

For those who really want to maximize the quality of education offered to disadvantaged and minority students—indeed to all students—the best hope is to study the different sorts of education systems that have been tried around the world and across history, and then ensure universal access to the best among them: a free educational marketplace.

If you want people to relentlessly search for better and more efficient ways to serve families, you have to give them the freedom, the encouragement, and the incentives to do so. Liberate, respect, and reward education entrepreneurs, and they will strive to the utmost to better educate your children. Don’t, and they won’t.

Categories: Policy Institutes

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