Cato Op-Eds

Subscribe to Cato Op-Eds feed
Individual Liberty, Free Markets, and Peace
Updated: 22 min ago

Is the Grand Jury System a Joke?

Wed, 02/26/2014 - 14:25

Tim Lynch

An excerpt from the Charlotte Observer:

During a single four-hour workday last week, a Mecklenburg County grand jury heard 276 cases and handed down 276 indictments.

That means the 18 jurors heard evidence, asked questions, weighed whether the charges merit a trial, then voted on the indictments – all at the average rate of one case every 52 seconds….

“The entire system is a joke,” said Joe Cheshire, a Raleigh attorney who handles high-profile criminal cases across the state. “There is absolutely no living, breathing person with any kind of intellect who believes that a grand jury could consider and vote on 10 complex issues in the period of time that they use to deliberate on hundreds.”

Charlotte attorney Jim Cooney agrees. Rather than check the power of government, grand juries have become a prosecutor’s ally, he said, “that hands out indictments like they’re boxes of popcorn.”

The article notes that the one recent case where a grand jury declined to issue an indictment involved a police officer.  Hmm.

For Cato scholarship on the problems with the grand jury system, go here.

Categories: Policy Institutes

Further Thoughts on Arizona's "Religious Freedom" Bill

Wed, 02/26/2014 - 14:24

Walter Olson

My colleague Ilya Shapiro has skillfully laid out some points often overlooked in the furor over Arizona’s SB 1062. In particular, the bill is a variation on what’s known as a “mini-RFRA” – that is, a state bill patterned after the federal Religious Freedom Restoration Act (RFRA) of 1993 – and can scarcely be understood outside the context of how RFRAs work, why they managed to sail almost uncontroversially through the U.S. Congress in 1993 with bipartisan support, and how they have since emerged as a serious obstacle to particular policy ambitions such as ObamaCare’s universal employer contraceptive mandate, with a resulting tendency for liberal opinion to swing against them (yet often with a curious reluctance to come right out and say that RFRA itself goes too far).  

A few points I’d add: 

* First, the various religion-and-discrimination bills moving in multiple state legislatures are very different from each other and demand separate analysis. (This Mother Jones account, while strongly opposed to all the bills, is better than most about acknowledging their differences.) The first bill to provoke a national furor was the very extreme measure passed by the Kansas lower house, which would have (among other things) introduced a new legal right for many public servants not to do their jobs and created rights to sue employers for not accommodating anti-gay sentiment. The Republican leadership of the Kansas Senate quite sensibly flagged these incursions on the rule of law and on the freedom of private enterprise as reasons to kill the bill

* What of the Arizona proposal? Eleven leading religion-and-law scholars, including such heavy hitters as Michael McConnell and Douglas Laycock, correct some misconceptions about the bill in this letter reproduced at Power Line. The Arizona bill pushes mini-RFRAs into highly disputed territory by specifying that it applies not just to “government” but to “state action” more broadly, the crucial difference being that it aims to insert a right to religious accommodation as a defense in litigation between private parties arising from state laws. (Contrary to some imaginings, the bill creates a right of attorneys’ fee recovery by prevailing religious-accommodation claimants only when the adverse party is a government.) To confess my biases, as a general matter I like the idea of affording wider religious-liberty defenses in most anti-discrimination statutes applying to private actors. At the same time, doing it this way – by pushing out the boundaries of RFRA to change the playing field of private litigation at one stroke, rather than pause for a debate about how best to address multiple areas and situations – strikes me as fairly sure to generate unintended consequences and unexpected results. When advocates warn Arizona Gov. Jan Brewer she will be sailing the ship of state into uncharted waters if she signs the bill, this is the provision that most makes me think they’re on to something. 

* Why not let the Arizona episode begin a debate about whether RFRAs have gone too far or not far enough? The law’s status as a bright new idea in the Clinton era doesn’t mean it should be immune from renewed scrutiny today with the perspective two decades of experience affords. At best, speaking as one not unsympathetic with its aims, it was and is at best a very blunt instrument, one that tends to privilege sincere religious belief over equally sincere belief grounded in something other than religion. It’s entirely conceivable that it and its state imitators go too far as applied to some subjects, yet perhaps not far enough as applied to others. 

Such a debate might prove more productive than the usual bitter round in the culture wars.

 

Categories: Policy Institutes

Bank Tax Is Wrong "Fix" for Too-Big-To-Fail

Wed, 02/26/2014 - 12:43

Mark A. Calabria

Chair of the House Ways and Means Committee Dave Camp is soon to roll out a plan for comprehensive tax reform. He is to be commended for doing so. Our tax code is an absolute mess with incentives for all sorts of bad behavior. Early reports suggest, however, that Congressman Camp will also include a “bank tax” to both raise revenue and address the “Too-Big-To-Fail” (TBTF) status of our nation’s largest banks. While the evidence overwhelmingly suggests to me that TBTF is real, with extremely harmful effects on our financial system, I fear Camp’s approach will actually make the problem worse, increasing the market perception that some entities will be rescued by the federal government.

Bloomberg reports the plan would raise “would raise $86.4 billion for the U.S. government over the next decade…would likely affect JPMorgan Chase & Co, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley.” The proposal would do so by assessing a 3.5 basis-point tax on assets exceeding $500 billion.

While standard Pigouvian welfare analysis would recommend a tax to internalize any negatives externalities, TBTF is not like pollution, it isn’t something large banks create. It is something the government creates by coming to their rescue. I don’t see TBTF as a switch, but rather a dial between 100 percent chance of a rescue and zero. By turning the banks into a revenue stream for the federal government, we would likely move that dial closer to 100 percent–and that is in the wrong direction. For the same reason, I have opposed efforts to tax Fannie Mae and Freddie Mac in the past. The solution is not to bind large financial institutions and the government closer together, as a bank tax would, but to further separate government and the financial sector. Just over a year ago, I laid out a path for doing so in National Review. Were we to truly end bailouts, limiting government is the only way to get that dial close to zero.   

If we want to use the tax code to reduce the harm of financial crises, then we should focus on reducing the preferences for debt over equity, which drive so much of the leverage in our financial system.  I’ve suggest such here in more detail. There are also early reports that Camp’s plan will reduce some of these debt preferences. Let’s hope those remain in the plan.

Categories: Policy Institutes

Folly of Federal Flood Insurance

Wed, 02/26/2014 - 11:29

Chris Edwards

Subsidized flood insurance is one of the many federal programs that is counter to both sound economic policy and sound environmental policy. Congress created the National Flood Insurance Program (NFIP) in 1968 to help homeowners in flood-prone areas purchase insurance. The FEMA-run program covers floods from river surges and storms on the seacoasts.

In recent years, the NFIP has gone hugely into debt and it may be bailed-out by taxpayers at some point. The program has encouraged people to build homes in areas that are too hazardous to safely occupy. It has encouraged towns to expand development in flood-prone areas. And the program undermines constitutional federalism by prompting the federal government to reach its regulatory tentacles into local zoning issues.

The NFIP subsidizes wealthy people with multiple payouts after their homes on the seacoasts are repeatedly destroyed. The program is very bad policy—a seemingly good idea to policymakers in the 1960s that has ended up creating growing distortions.

When I started reading about the NFIP recently, I was surprised to learn that Congress made sensible reforms to it in 2012 under the Biggert-Waters Act. The best reform would be a complete repeal of the NFIP, but in the meantime the 2012 law was a good start at reducing the program’s costs and distortions.

Alas, the prospect of Congress staying on a pro-market, pro-environment reform path was apparently too good to be true. No sooner had the ink dried on the 2012 law than members of Congress began trying to reverse the reforms.

This week, Congress will be voting on a bill that backtracks on the 2012 reforms. I have not studied the details of the new bill, but Diane Katz at the Heritage Foundation has penned a nice overview.

Categories: Policy Institutes

Political Poster Week Continues: "I Need Smokes"

Wed, 02/26/2014 - 10:30

Walter Olson

 

As I noted in my book The Rule of Lawyers, it’s not by happenstance that the sharpest increases in Americans’ smoking rates have come in wartime. Nicotine staves off the boredom, fear, and loneliness of life on the front lines, and the smoking habit encourages socialization among troops. Years later, the federal government was at pains to downplay its vigorous promotion of tobacco use as part of both the WWI and WWII war effort. (It had a sideline in promoting some other important forms of substance abuse as well, notably amphetamine-munching.)

This poster, of World War I vintage, would have made a good illustration for the article I wrote in Reason a while back on government contributions to product-related risk. For some other tobacco-related war poster themes, check the Hoover Institution political poster database

Categories: Policy Institutes

For Marriage Equality, Religious Liberty, and the Freedom of Association

Wed, 02/26/2014 - 08:53

Ilya Shapiro

Even though I’m for marriage equality – next week I’ll be filing a brief supporting the challenge to the marriage laws of Oklahoma and Utah in the U.S. Court of Appeals for the Tenth Circuit – I have no problem with Arizona’s SB 1062.

SB 1062 does nothing more than align state law with the federal Religious Freedom Restoration Act (which passed the House unanimously, the Senate 97-3, and was signed by President Clinton in 1993). That is, no government action can “substantially burden” religious exercise unless the government uses “the least restrictive means” to further a “compelling interest.” This doesn’t mean that people can “do whatever they want” – laws against murder would still trump religious human sacrifice – but it would prevent the government from forcing people to violate their religion if that can at all be avoided. Moreover, there’s no mention of sexual orientation (or any other class or category).

The prototypical scenario that SB 1062 is meant to prevent is the case of the New Mexico wedding photographer who was fined for declining to work a same-sex commitment ceremony. This photographer doesn’t refuse to provide services to gay clients, but felt that she couldn’t participate in the celebration of a gay wedding. There’s also the Oregon bakery that closed rather than having to provide wedding cakes for same-sex ceremonies. Why should these people be forced to engage in activity that violates their religious beliefs?

For that matter, gay photographers and bakers shouldn’t be forced to work religious celebrations, Jews shouldn’t be forced to work Nazi rallies, and environmentalists shouldn’t be forced to work job fairs in logging communities. This isn’t the Jim Crow South; there are plenty of wedding photographers – over 100 in Albuquerque – and bakeries who would be willing to do business regardless of sexual orientation, and no state is enforcing segregation laws. I bet plenty of Arizona businesses would and do see more customers if they advertised that they welcomed the LGBT community.

At the end of the day, that’s what this is about: tolerance and respect for other people’s beliefs. While governments have the duty to treat everyone equally under the law, private individuals should be able to make their own decisions on whom to do business with and how – on religious or any other grounds. Those who disagree can take their custom elsewhere and encourage others to do the same. 

Categories: Policy Institutes

Portugal Drug Decriminalization Back in the News

Tue, 02/25/2014 - 15:33

Tim Lynch

Yesterday on Bloomberg TV’s Street Smart, Hanna Hetzer of the Drug Policy Alliance gave an interview about 10 years of  drug decriminalization in Portugal. You can watch the video here.

Cato published the landmark study on Portugal’s drug decriminalization policy in 2009.  Check it out.

Categories: Policy Institutes

Political Poster Week Continues: "Come On, Dad!"

Tue, 02/25/2014 - 11:57

Walter Olson

Yes, it’s political poster week at Cato at Liberty. (Yesterday’s “Inspectors All Round” poster for the Conservative Party is here). This poster also appeared during the 1929 British general election and although by that point the rapidly declining Liberal Party had, alas, abandoned its one-time allegiance to principles of economic non-intervention, it was still an important locus of support for some good causes such as free trade.

Tomorrow: be patriotic and supply all the tobacco you can.

Categories: Policy Institutes

Pounding the Table, Not the Facts, on School Choice

Tue, 02/25/2014 - 09:01

Jason Bedrick

There’s an old legal proverb about how to win a court case: “If the law is on your side, pound the law. If the facts are on your side, pound the facts. If neither is on your side, pound the table.” In this factually-challenged attack on school choice, two lawyers at the UNC Center for Civil Rights do a great deal of table pounding.

Despite mountains of evidence to the contrary, the lawyers charge that school choice programs don’t work and that they increase racial segregation. For example, they claim: 

…in states with [school choice] programs, student achievement at the private schools is no better, and often worse, than in the public schools. In fact, in Milwaukee and Cleveland, whose voucher programs are the country’s longest running, traditional public school students outperform voucher students on available proficiency measures.

Even read in the most charitable light, the lawyers misleadingly compare apples and orangataungs. Participants in school choice programs are generally more disadvantaged than the general population, so it is absurd to compare their average performance against the general population, which includes all the students in wealthy “public” school districts (where low-income parents have been arrested for trying to enroll their kids). Government school advocates rightly object when someone compares average private school performance to average government school performance. The private schools outperform government schools on average, but because both parents and the private schools select each other, the comparison breaks down. The same is true here.

A meaningful comparison requires a randomized-controlled trial, which is the gold standard of social science research because the process of randomization allows researchers to compare like against like and to isolate the effect of the “treatment” (in this case, the offer of a school choice scholarship). Fortunately, there have been 12 such studies addressing this very question from highly-respected institutions like Harvard University and the Brookings Institution. Eleven found that school choice programs lead to positive student outcomes, including higher academic performance and higher rates of high school graduation and college matriculation. One study found no statistically significant difference and none found a negative impact.

These studies include evaluations of the Milwaukee and Cleveland school voucher programs that the lawyers falsely claimed were underperforming vis-a-vis government schools. In fact, a longitudinal study of the Milwaukee program found that it increased academic performance, graduation rates, and college enrollment (and did so at about half the cost per pupil):

“Students enrolled in the Milwaukee voucher program are more likely to graduate from high school and go to college than their public school counterparts, boast significantly improved reading scores, represent a more diverse cross-section of the city, and are improving the results of traditional public school students,” said the study’s press release.

“Among the new findings are that students enrolled in the Milwaukee Parental Choice Program (MPCP)—the nation’s oldest private school choice program currently in operation—not only graduate from high school on time by seven percentage points more than students enrolled in Milwaukee Public Schools (MPS), but they are also more likely to enroll in a four-year college and persist in college.”

In other words, the lawyers’ assertion that the achievement of school choice students is “is no better, and often worse” is flat out false. It’s not possible to state with any certainty where they’re getting their faulty information (quite possibly the usual suspects), but President Obama made similarly false claims in a recent TV interview, prompting prominent researchers including of Paul E. Peterson of Harvard University and Patrick Wolf of the University of Arkansas to correct the record:

The faulty empirical claims about the effectiveness of school choice programs were bad enough, but the lawyers’ greater offense was cynically raising the specter of racial segregation:

We also know the historical links between racism and private schools. In 1964, 83 private schools enrolled approximately 9,500 students in N.C. But from 1968 to 1972 – when advocates and the federal government began to enforce meaningful school desegregation – the state jumped from 174 private schools and 18,000 students, to 263 schools and over 50,000 students. Surging enrollment in non-public schools was often concentrated in areas with high concentrations of African-American students , and the segregative legacy of these private schools and academies continues to this day:

Bertie County is 62 percent African American. Lawrence Academy was founded in Bertie County in 1968. Its student body is 98 percent white.

Halifax County is 53 percent African-American. Halifax Academy and Hobgood Academy were both founded in 1969. Halifax Academy is 98 percent white; Hobgood Academy is 95 percent white.

Hertford County is over 60 percent African-American. Ridgecroft School, founded in 1968, is 97 percent white.

Northampton County is 58 percent African-American, but Northeast Academy, established in 1966, is 99 percent white. 

First, it’s absurd to link the history of segregation solely to private schools when the public schools were segregated for over a century. This is especially absurd since inter-district segregation is now higher among government schools than 50 years ago.

Second, these anecdotes tell us absolutely nothing without context. It’s possible that these schools are illegally discriminating on the basis of race, but it’s also possible that this merely reflects the fact that, under the status quo, wealthier whites are better able to afford private school than less wealthy blacks, which is exactly the inequity that NC’s school voucher program seeks to address.

It’s telling that the lawyers refrained from citing any of the empirical evidence on the matter:

Eight empirical studies have examined school choice and racial segregation in schools. Of these, seven find that school choice moves students from more segregated schools into less segregated schools. One finds no net effect on segregation from school choice. No empirical study has found that choice increases racial segregation.

Additionally, a recent study from the Louisiana Department of Education also found that the state’s school voucher program improves racial integration. More than 85 percent of the scholarship recipients in Louisiana are black. Likewise, school choice programs in other states disproportionately benefit minority students, including 81 percent of scholarship students in Milwaukee, Wisconsin, and 78 percent in Florida.

The lawyers concluded that it is “a twisted irony that the leaders of the voucher movement claim a racial justice rationale for their scheme.” In fact, the twisted irony is that an organization with the words “civil rights” in their title would work so hard to deprive minorities of the ability to choose the schools that work best for their own kids. They’re joined by other defenders of the government school monopoly who are suing to block North Carolina’s nascent school choice program. If these self-proclaimed “civil rights” lawyers really cared about racial justice, they would stop standing in the school house door.

Categories: Policy Institutes

Congress against Budget Reform: Voting to Hike Subsidies for People Who Build in Flood Plains

Mon, 02/24/2014 - 16:22

Doug Bandow

Uncle Sam is essentially broke.  But the federal government keeps spending.  The House is voting this week on a measure already adopted by the U.S. Senate to suspend money-saving reforms adopted less than two years ago.

In 1968 Congress created the National Flood Insurance Program, shifting the cost of disasters from people who chose to live in flood-prone areas to taxpayers who don’t.  Over time Congress kept cutting premiums.  By 1982 two-thirds of participants received a subsidy.

NFIP turned into foolishness squared.  The first cost is financial:  the federal government keeps insurance premiums low for people who choose to build where they otherwise wouldn’t.  The Congressional Research Service figured that the government charges about one-third of the market rate for flood insurance.  The second cost is environmental:  Washington essentially pays participants to build on environmentally-fragile lands that tend to flood. 

Uncle Sam also has a propensity to spend billions more to rebuild public buildings and infrastructure in flood zones. 

Although not every NFIP beneficiary is wealthy, CRS noted:  “Some critics point out that the costs—financial risk and ecological damage—are widely distributed to taxpayers across the country and the benefits, by contrast are disproportionately enjoyed by wealthy counties and by owners of vacation homes.”

NFIP’s overall liability is $1.3 trillion.  Today total program debt is about $25 billion.  Economists Judith Kildow and Jason Scorse warned that “the flood insurance program is a fiscal time bomb for the government.” 

So disastrous were the program’s finances that even Congress felt the need to act.  In July 2012 legislators approved the Biggert-Waters Flood Insurance Reform Act in an attempt to make the NFIP more accurate, efficient, and solvent.  For different properties rates were increased and subsidies were cut.  Overall, the legislation was expected to save about $25 billion.

The amendment worked—too well.  Insurance bills began increasing.  People used to living well at taxpayer expense complained to their legislators.  Interest groups which profit from property sales also raced to Capitol Hill,  

So now reform co-sponsor Rep. Maxine Waters (D-Ca.) is pushing to delay the reforms until 2018.  Of course, in 2018 no one will be more willing to pay higher premiums, and undoubtedly will again lobby for further relief from Congress.

Explained Waters:  “Never in our wildest dreams did we think the premium increases would be what they appear to be today.”  Her new legislation, backed by a mix of Republicans and Democrats, would bar increases in premiums and reductions in subsidies for some properties, restore earlier subsidies for others, and mandate an “affordability study.”

Said Waters:  “neither Democrats nor Republican envisioned it would reap the kind of harm and heartache that may result from this law.”  She was echoed by Nicholas Pinter, a professor at Southern Illinois University, who advocated reforms but also “compassion for Americans living on flood-prone lands.” 

As I point out in my new article on Forbes online: 

Actually, those people need to be held responsible for their actions.  Compassion should be accorded taxpayers, who have suffered for decades.  Mississippi Commissioner of Insurance Mike Chaney said the NFIP should not make up its shortfall from homeowners who “simply followed the rules.”  But if not them, who?  After all, they received the benefits of the subsidized insurance.

At the end of January, the Senate voted to effectively kill the 2012 reform.  That would “return the program to a state of insolvency,” Shai Akabas of the Bipartisan Policy Center told the New York Times

The Republican House leadership has approved a vote on a companion measure.  Even the White House criticized Congress’ potential U-turn.

In fact, the 2012 measure didn’t go far enough.  Congress should eliminate federally-subsidized flood insurance—entirely.  There is no justification for turning Uncle Sam into a back-stop for wealthy vacationers and other privileged recipients of federal largesse.

Like Uncle Sam, NFIP is broke.  It should be killed, not reformed.  Legislators should start exhibiting compassion for American taxpayers.

Categories: Policy Institutes

The Missing Data in Krugman's German Austerity Narrative

Mon, 02/24/2014 - 16:07

Daniel J. Mitchell

There’s an ongoing debate about Keynesian economics, stimulus spending, and various versions of fiscal austerity, and regular readers know I do everything possible to explain that you can promote added prosperity by reducing the burden of government spending.

Simply stated, we get more jobs, output, and growth when resources are allocated by competitive markets. But when resources are allocated by political forces, cronyism and pork cause inefficiency and waste.

That’s why statist nations languish and market-oriented countries flourish.

Paul Krugman has a different perspective on these issues, which is hardly a revelation. But I am surprised that he often times doesn’t get the numbers quite right when he delves into specific case studies.

He claimed that spending cuts caused an Estonian economic downturn in 2008, but the government’s budget actually skyrocketed by 18 percent that year.

He complained about a “government pullback” in the United Kingdom even though the data show that government spending was climbing faster than inflation.

He even claimed that Hollande’s election in France was a revolt against austerity, notwithstanding the fact that the burden of government spending rose during the Sarkozy years.

My colleague Alan Reynolds pointed out that Krugman mischaracterized the supposed austerity in the PIIGS nations such as Portugal, Ireland, Italy, Greece, and Spain.

We have another example to add to the list.

He now wants us to believe that Germany has been a good Keynesian nation.

Here’s some of what Professor Krugman wrote for the New York Times.

I hear people trying to dismiss the overwhelming evidence for large economic damage from fiscal austerity by pointing to Germany: “You say that austerity hurts growth, but the Germans have done a lot of austerity and they’re booming.” Public service announcement: Never, ever make claims about a country’s economic policies (or actually anything about economics) on the basis of what you think you’ve heard people say. Yes, you often hear people talking about austerity, and the Germans are big on praising and demanding austerity. But have they actually imposed a lot of it on themselves? Not so much.

In some sense, I agree with Krugman. I don’t think the Germans have imposed much austerity.

But here’s the problem with his article. We know from the examples above that he’s complained about supposed austerity in places such as the United Kingdom and France, so one would think that the German government must have been more profligate with the public purse.

After all, Krugman wrote they haven’t “imposed a lot of [austerity] on themselves.”

So I followed the advice in Krugman’s “public service announcement.” I didn’t just repeat what people have said. I dug into the data to see what happened to government spending in various nations.

And I know you’ll be shocked to see that Krugman was wrong. The Germans have been more frugal (at least in the sense of increasing spending at the slowest rate) than nations that supposedly are guilty of “spending cuts.”

To ensure that I’m not guilty of cherry-picking the data, I look at three different base years. But it doesn’t matter whether we start before, during, or after the recession. Germany increased spending at the slowest rate.

Moreover, if you look at the IMF data, you’ll see that the Germans also were more frugal than the Swedes, the Belgium, the Dutch, and the Austrians.

So I’m not sure what Krugman is trying to tell us with his chart.

By the way, spending in Switzerland grew at roughly the same rate as it did in Germany. So if Professor Krugman is highlighting Germany as a role model, maybe we can take that as an indirect endorsement of Switzerland’s very good spending cap?

But I won’t hold my breath waiting for that endorsement to become official. After all, Switzerland has reduced the burden of government spending thanks to the spending cap.

Not exactly in line with Krugman’s ideological agenda.

P.S. This isn’t the first time I’ve had to deal with folks who mischaracterize German fiscal policy. When Professor Epstein and I debated a couple of Keynesians in NYC as part of the Intelligence Squared debate, one of our opponents asserted that Germany was a case study for Keynesian stimulus. But when I looked at the data, it turned out that he was prevaricating.

P.P.S. This post, I hasten to add, is not an endorsement of German fiscal policy. As I explained while correcting a mistake in the Washington Post, the burden of government is far too large in Germany. The only good thing I can say is that it hasn’t grown that rapidly in recent years.

P.P.P.S. Let’s close with a look at another example of Krugman’s misleading work. He recently implied that an economist from the Heritage Foundation was being dishonest in some austerity testimony, but I dug into the numbers and discovered that, “critics of Heritage are relying largely on speculative data about what politicians might (or might not) do in the future to imply that the Heritage economist was wrong in his presentation of what’s actually happened over the past six years”

Categories: Policy Institutes

Marijuana's Moment

Mon, 02/24/2014 - 14:58

Tim Lynch

Very good, front page story in yesterday’s Washington Post entitled, “Marijuana’s Moment?

The highlight is a quote from former drug czar, General Barry McCaffrey: “The momentum to treat marijuana as a legal drug is irreversible.”  Wow.  The last time I was on a panel with him was about two years ago and it was quite evident then that the tide was turning, but I expected him to keep fighting.  According to the Post story, the former drug czar no longer accepts invitations to appear on television.  That will save me some time fact-checking him.

Here’s another excerpt from the Post story:

America has been at the edge of marijuana legalization several times during the past half-century, but never as close to mass acceptance of the drug as the nation is today.

Since the 1960s, the United States has traveled on a herky-jerky trip from hippies and head shops to grass-roots backlash by suburban parents, from enthusiastic funding of the war on drugs to a gathering consensus that the war had little effect on marijuana use. Now, for the first time, marijuana legalization is winning majority support in public opinion polls and a drug used by about 6 percent of Americans — and one-third of the nation’s high school seniors — is starting to shake off its counterculture reputation. It is winning acceptance even from some police, prosecutors and politicians.

But is this time really different? Why is the current campaign for legalization resonating when previous ones did not? Today’s leap toward legality is entwined with the financial desperation of cash-strapped states, an Internet-driven revolution in how Americans learn about marijuana and its medicinal uses, and a rising libertarian sensibility in which many liberals and conservatives alike have grown skeptical of government’s role in telling citizens how to medicate themselves.

The momentum is now obvious and it is great to see the drug warriors in retreat, but marijuana is still considered contraband in 48 states and under federal law.  There is still much work to do.  It costs money to start and win initiative campaigns, for example.  It used to be hard to raise money because donors thought it was a hopeless cause.  Now potential donors are making the mistake that legalization is “inevitable.”  The shift in public opinion helps, but it does not assure political action.  To complete the job, friends of legalization need to step up their efforts.  The next state to consider marijuana legalization–by initiative–will be Alaska this summer.

For more info on Cato’s work, go here.

Categories: Policy Institutes

The Arrest of “Chapo” Guzmán: Did We Just Win the War on Drugs?

Mon, 02/24/2014 - 14:56

Juan Carlos Hidalgo

The arrest on Saturday of Joaquín “El Chapo” Guzmán, leader of the Sinaloa Cartel, is no small feat. He was perhaps the world’s most wanted man, and his capture certainly represents a major political victory for Mexico and its president Enrique Peña Nieto. But just like the killing of Pablo Escobar in 1993 didn’t end the war on drugs, the downfall of Joaquín Guzmán won’t put an end to drug trafficking in the Americas.

As leader of Mexico’s largest criminal organization, “Chapo” was the central figure in the breakout of drug violence in that country. In 1992, Guzmán decided to invade the turf of the Arellano Félix brothers in Tijuana. Years later he also declared war on the Juárez and Gulf cartels, thus unleashing years of unprecedented bloodshed in northern Mexico. Eventually he would succeed in controlling most of the lucrative routes, and his organization would become responsible for nearly half of all illegal drugs coming into the United States.  

His power relied not solely on plomo (lead) but also plata (money). Some years ago, high-ranking officials at Mexico’s Attorney General’s Office were arrested for receiving bribes from the Sinaloa cartel. The sums were staggering: between $150,000 and $450,000 per month. Guzmán’s organization was also actively engaged in buying the support of policemen. According to the Secretariat of Public Security, every year the cartels spend approximately $1.2 billion dollars bribing 165,000 cops all over Mexico (just as a comparison, the Merida Initiative, Washington’s aid package to Mexico and Central America to fight organized crime, totals $1.6 billion).

Without a doubt, Guzmán’s capture is a huge success for Enrique Peña Nieto. In the last seven months, the leaders of Mexico’s top three drug cartels (Zetas, Gulf and Sinaloa) were arrested without a single shot being fired. So, are we on the verge of wining the war on drugs? That all depends on what ultimate goal is. Is it taking down drug kingpins or stopping the flow of drugs into the United States? If it’s the latter, the war is far from over. A report from the Office of Intelligence and Operations Coordination of the U.S. Custom and Border Protection agency looked at drug seizure data from January 2009 to January 2010 and matched it with the arrests or deaths of drug operatives (11 druglords in total). It found that “there is no perceptible pattern that correlates either a decrease or increase in drug seizures due to the removal of key DTO [drug trafficking organization] personnel.”

The latest National Drug Threat Assessment report from the Justice Department indicates that while cocaine availability has been declining since 2007, that of marijuana, heroine and methamphetamine is on the rise. In the case of cocaine, the fall in availability hasn’t produced a sharp increase in its street price, as the graph below shows:

We shouldn’t expect a major decline in the flow of drugs into the United States, just as such didn’t occur after Pablo Escobar, then the leader of the powerful Medellín cartel, was killed in December 1993.

The consequences on the dynamics of violence in Mexico are yet to be seen. Sinaloa is the last major drug organization with a semi-pyramidal structure in that country, and it’s also the most professionally run. Two of “Chapo’s” top lieutenants, Juan José “El Azul” Esparragosa and Israel “El Mayo” Zambada remain at large. It’s likely that they already had in place a succession plan in case Guzmán was arrested. Some experts even speculate on a new generation of drug kingpins taking over Sinaloa. So it isn’t sure that the cartel will implode or disintegrate. Nor we should expect an outbreak of violence as other cartels try to move into Sinaloa territory. That didn’t happen when Miguel Ángel Treviño, leader of the Zetas, was arrested last July.

The arrest of “Chapo” Guzmán is being seen as a major triumph in the battle against organized crime in Mexico. But his capture doesn’t bring us any close to victory in the war on drugs.

Categories: Policy Institutes

Laura Ingraham's Poor Response to George Will on Immigration

Mon, 02/24/2014 - 13:59

Alex Nowrasteh

Radio talk show host Laura Ingraham recently penned a criticism of an excellent column written by George Will about immigration.  Although George Will is more than capable of defending himself, I thought I should step in and push back against many of Ingraham’s points.

The first two arguments made by Ingraham respond to practical political concerns – the midterm elections in 2014:

Will claims that the GOP should not focus its arguments in 2014 solely on Obamacare. I agree, and so do other conservative opponents of immigration reform. But that hardly proves that we will benefit politically from giving in to the president on his top priority and yielding a huge political victory to the Democrats that will boost their morale and devastate many people in our base.

Will maintains that if the GOP enforces unanimity on major issues, it will not grow. GOP supporters of reform are not being silenced or pushed out of the party. And, again, I don’t see the political benefits of siding with the president and House Minority Leader Nancy Pelosi (D-Calif.) against the conservative base on such a vital issue. The easiest way for the GOP to do very poorly in 2014 would be for its base to stay home, and that is more likely to happen if conservative voters watch the GOP cooperate with the president on immigration.”

Many Republicans are looking at polling data, months in advance, and counting their electoral chickens before they hatch.  The train wreck of Obamacare will likely help Republicans in the 2014 elections.  I’m not a political strategist so I won’t comment on Ingraham’s or Will’s arguments about that.  Ingraham, however, misleadingly leaves off the name of prominent conservative Republicans who support immigration reform, namely Senators Marco Rubio (R-FL) and Jeff Flake (R-AZ).  It is true that President Obama and Rep. Nancy Pelosi (D-CA) support immigration reform, but excluding conservative backers makes the bipartisan reform effort appear entirely Democratic – which it isn’t.

Will contends that it is ‘unworthy’ of conservatives to conclude that immigrant voters will always vote for Democrats. This is a plea for hope over experience. Of course conservatives should be trying to get immigrants’ votes. Of course they should never give up on any voting bloc. But poll after poll has shown that Hispanic voters (many of whom are immigrants) overwhelmingly support the Democratic Party — not just because of immigration, but also because they generally agree with Democrats on fundamental questions of how much the national government can and should do. In light of these data and the experience of California — which has shifted from a Republican stronghold to one of the most liberal states in the country, in large part because of the rise of its immigrant population — it is absurd to pretend that allowing even more immigrant voters wouldn’t be a boon to the Democrats.

Ingraham is right that most modern day immigrants and their immediate descendants vote Democratic – a fact that has been true since 1798 when the Federalist Party blamed Irish and French immigrants for many of the problems in America, driving immigrants and their descendants to the proto-Democratic Party.  Interestingly, the Northern Democrats remained the party of laissez-faire and free trade up until the later 19th century.  During that entire time, they earned the votes of immigrants.

After the Republican Party became the party of limited government and the Democratic Party became the party of big government, immigrants kept on voting Democratic.  Italian and Irish immigrants didn’t suddenly switch their ideology, they continued to vote for the political party that was nice to them and that welcomed them into their ranks – the Democrats.  With few exceptions, this trend has continued to this day.

Constituencies will neither vote for nor listen to the political candidates of the party that they think doesn’t like them – Republicans in this case.  It’s not surprising then that immigrants do not listen to GOP talking points, listen to the Democratic ones, and express support for the latter in polls and in the voting booth.  Imagine that you are a Hispanic immigrant, Asian immigrant, or the child of either; would you be more likely to support the political party that welcomes you to America or the one that wants to deport your friends and family?

Regarding my home state of California turning Democratic because of immigrants, another interpretation fits the data much better: The California State GOP alienated immigrants and their descendants by blaming them for all of the state’s problems in the 1994 reelection campaign of Pete Wilson (R) and the poorly crafted and supported Proposition 187.

California Elections

Election Hisp. Vote for Dem Hisp. Vote for GOP Dem. Plurality Hisp. Hisp. % of Vote Net Edge Hisp. Gave Dems 1998 (Governor)

78%

17%

+61

14%

+8.5%

1996 (President)

70%

21%

+49

11%

+5.4%

1994 (Governor)

71%

25%

+46

9%

+4.1%

1992 (President)

65%

35% (Perot)

+30

8%

+2.4%

1990 (Governor)

53%

47%

+6

5%

+0.3%

1988 (President)

65%

34%

+31

7%

+0.4%

1986 (Governor)

52%

46%

+6

7%

+0.4%

1984 (President)

55%

44%

+11

8%

+0.9

Source:  California’s Expanding Latino Electorate, California Opinion Index, May 2000.

http://field.com/fieldpollonline/subscribers/COI-00-May-Latinos.pdf#page=6

In the two governor elections in California that I have data for prior to 1994, 46 percent and 47 percent of Hispanics voted for the GOP – giving the Democratic gubernatorial candidates a less than one percentage point advantages in those elections.  In 1994, when the GOP blamed most problems in the state on unauthorized immigrants, and many unofficial groups closely aligned with the GOP that year even blamed all immigrants for California’s problems in a particularly tone-deaf campaign, Hispanic vote shares for Pete Willson dropped to only 25 percent while the 1998 GOP candidate received a mere 17 percent.  All of this occurred at a time when the Hispanic voting population of California was expanding dramatically. 

Hispanics in California voted for Democrats over Republicans prior to 1994, but prior to the GOP blaming unauthorized immigrants for California’s problem (many Hispanics in the state interpreted “unauthorized immigrants” to mean “Hispanics”), the difference was minor.  Beginning in 1994 and afterwards, Hispanic support for the Democratic Party was overwhelming and explains much of that party’s electoral gains in California.  Immigrants didn’t turn California into an overwhelming Democratic state – the GOP’s reaction to immigration mostly did that.   

He also contends there is no ‘data’ showing that U.S. culture has lost its power to assimilate immigrants. But today 20.8 percent of Americans don’t speak English at home — up from 17.9 percent in 2000. In a 2011 Pew Research Center survey, Hispanic voters (again, many of whom are immigrants) were more hostile to the word capitalism than almost all other groups surveyed — including self-identified liberal Democrats. The Hudson Institute reported last year that “[b]y 21 percentage points (65% to 44%), native-born citizens are more likely than naturalized immigrants to view America as ‘better’ than other countries as opposed, to ‘no better, no worse.’” In fact, on 20 separate issues, it found a large gap on matters of patriotism and civic understanding between native-born Americans and citizen immigrants. Among immigrants today, it is increasingly fashionable to reject American exceptionalism in favor of multiculturalism. To pretend that this isn’t happening isn’t optimism; it’s sheer fantasy.

Will’s comments are an implicit comparison between the present day rate of immigrant assimilation compared to the assimilation rate of previous waves of immigrants, like Italians, Germans, and the Irish.  Good data from 100 years ago about rates of immigrant assimilation do not exist but we can all agree (hopefully) that it was successful – although nativists a century ago were screaming that those immigrants could not assimilate.  Ingraham’s statistics only compare data from 2000 onwards, which hardly shows that America’s ability to assimilate immigrants has deteriorated over the last century.  Non-English speaking immigrants throughout American history have rarely taken up English immediately.

Samuel P. Huntington in his book Who Are We?makes predictions about Hispanic assimilation rates in the United States, arguing that they will not assimilate.  Ingraham seems to be getting many of her dire predictions about assimilation from Huntington’s writings or from those who support his pessimistic thesis.  Citrin et al. tested Huntington’s hypotheses in their paper published in the journal Perspectives on Politics.  They found that Huntington’s dire predictions were not coming true:

  • Hispanic immigrants and their descendants acquire English and lose Spanish rapidly beginning with the second generation and appear no more or less religious or committed to the work ethic than U.S.-born Caucasians.
  • English fluency has always been a mark of being American.  86 percent of those with families originally from Mexico speak only English or speak it very-well, compared to 94 percent of people of Asian origin.  Although bilingualism is more common among Hispanics of Mexican ancestry, Spanish gets rapidly replaced by English as the dominant language.
  • Linguistic minorities generally accept that English is the country’s common language and that learning English is essential for economic advancement.
  • A clear majority of Hispanics reject a purely ethnic identification.
  • American patriotism grows from one generation to the next and self-identification as “American” increases dramatically.
  • After adjusting for age and education, U.S.-born Hispanics are more patriotic than the average U.S.-born non-Hispanic.  Despite the hyperbolic claims of President Theodore Roosevelt, hyphenated Americanism does not produce less patriotism.
  • A traditional pattern of political assimilation amongst Hispanics appears to prevail.
  • By the third generation, the preferences of Hispanics on numerous cultural and political issues more closely resemble those of whites and blacks than those of first generation Hispanic immigrants.

No doubt the opinions of the immigrants themselves on these issues are quite different from U.S.-born Americans, but that is the wrong group to measure when comparing assimilation rates.  Assimilation is a process that takes generations and always has – with few exceptions.  The present U.S.-born generations that follow immigrants assimilate at a historically steady pace that has recently improved along some dimensions.  This rate of assimilation is occurring despite the large number of Hispanics who are unauthorized immigrants.  Looking at educational attainment rates and wage growth for unauthorized immigrants legalized in the 1986 amnesty, if current unauthorized immigrants were legalized then the rate of their assimilation would increase.

Will claims that conservative opponents of ‘reform’ support the ‘East Germanization’ of our border. This is an outrageous assertion — East Germany tried to keep its people from escaping a vile dictatorship. By contrast, conservatives simply want the U.S. government to fulfill a top priority of any government — defending our borders to ensure that the benefits of American life belong only to those people who are here legally. That’s not happening now. Will relies on a blog post from Brad Plumer of The Post to claim that our southwestern border security is 84 percent ‘effective.’ But that post also noted that in 2011, 85,000 people successfully crossed our Southwest border illegally — and that non-government sources think the number is much higher. And Plumer also has reported that “the best outside estimate” is that the U.S. government only stops about half of all illegal border crossings from Mexico . Conservatives are wise to insist on much stricter enforcement measures.

Brad Plummer didn’t come up with the 84 percent border effectiveness figure, the Government Accountability Office did in December of 2012.  I added up their data for FY 2011 and got an 81 percent enforcement effectiveness rate on the Southwest Border.

Regardless of that small discrepancy, a cheap and effective way to secure the border is by creating a large guest worker visa program for lower-skilled migrant workers.  As I’ve written about numerous times before, a lawful migration pathway will channel would-be unauthorized immigrants into the legal market so Border Patrol can concentrate on security and criminal threats instead of keeping out mostly peaceful workers.  The government followed this strategy in the early 1950s and thereby reduced unauthorized immigration by an estimated 90 percent while the number of Border Patrol agents decreased.  Rather than further fortifying the border, a guest worker visa program is a small government solution to unauthorized immigration.

Will cites a recent Congressional Budget Office report that indicates that immigration will be good for the U.S. economy. But the CBO report states that if the Senate’s ‘Gang of Eight’ bill becomes law, U.S. per-capita gross national product would be 0.7 percent lower in 2023 than if the law were not passed. That hardly sounds like a recipe for a healthier economy.

Ingraham leaves out the portions of the CBO report that do not support her position.  Although every CBO report should be taken with a big grain of salt, this is the first time they have dynamically scored legislation like this.  Delving into the details of the CBO’s dynamic score, they estimated that the Gang of Eight bill would increase gross domestic production by 3.3 percent in 2023 and 5.4 percent in 2033, relative to the baseline.  Ingraham is right that per capita gross national product would lower by .7 percent by 2023 but she fails to mention that it will be higher by .2 percent in 2033.  Wages would be .5 percent higher in 2033 under the Gang of Eight bill.  Those details are relevant to any discussion of the CBO report.

Will concludes that House Republicans are opposed to immigration reform because they have ‘only dim memories of a more dynamic United States.’ Nonsense. Does he really believe that most House Republicans can’t remember the Reagan economy or the 1990s dot-com boom? House Republicans probably are the only ones who remember that the policy of letting millions of immigrants into the country — by not adequately enforcing our borders — has already been tried and has failed. Time after time, we are told that there are 11 million illegal immigrants already here. Where’s the resulting economic boom? Why do we believe that opening the borders even more — and letting even more people pour into this market — would have a different result?

This point by Ingraham is perplexing.  She claims Republicans can remember the dynamic economies of the 1980s and 1990s that simultaneously occurred with massive increases in immigration but then claims that immigration did not lead to any economic expansion.  Immigration from Mexico has been about net-zero since 2006, when the economy first started to worsen thanks to the housing collapse.  If low-immigration helps American workers, as Ingraham seems to claim, where is the post-2006 boom?

Historically, immigration increases during boom times and stops or reverses during poor economies.  A more liberalized international labor market produced through allowing more lawful immigration will help fuel economic booms.  Relaxing our deportation and immigration enforcement policies will stop hurting the economy through separating willing workers from American employers and tearing consumers away from the United States. 

Finally, Will says that ‘[z]ero-sum reasoning about a fixed quantity of American opportunity is for a United States in a defensive crouch.’ Given how badly this country has been governed in recent years, it makes sense for conservatives to be more aggressive about defending us from bad ideas percolating in Washington. More important, Will has misstated the role of optimism in policymaking. The wise policymaker doesn’t assume that any policy adopted in good faith will have good results. Instead, he or she weighs the likely outcome of any new policy based on facts and experience — not sentiments and dreams. In this case, the overwhelming evidence suggests that passing immigration reform will be a political boon for liberals, weaken our national sovereignty and lower our per-capita GNP. Furthermore, recent history shows that leaders in both parties are fanatics on the topic of immigration, and they cannot be trusted to effectively enforce any significant border measure. Under these circumstances, for conservatives to sit down with President Obama and his political allies to write a bill that will reward the president would not be an act of political courage; it would be political suicide.

Ingraham dodges Will’s point.  Despite the generations of bad economic policy emanating from Washington DC, the United States still does not have a zero-sum economy.  As I’ve explained here and elsewhere, people create their own opportunity once here or immigrate because there is a surfeit of it.  If we really do live in a zero-sum economy, then the greatest threat to future American opportunity does not come from immigration but from procreation.        

Ingraham can be a very lucid writer but her piece responding to George Will is sometimes confused and does not convincingly counter his points.

Categories: Policy Institutes

A Tough Day in Court for the EPA's Greenhouse Gas Regulations

Mon, 02/24/2014 - 12:59

Andrew M. Grossman

The Obama Administration appeared prepared to abandon a major portion of its initial greenhouse gas regulatory scheme in oral argument before the Supreme Court today. Solicitor General Donald Verrilli, defending a series of EPA rules, sought to preserve regulations reaching large industrial sources by offering up a more aggressive gambit by the agency that could potentially reach millions of smaller businesses, apartment buildings, and schools.

The problem, as EPA itself has conceded, is that EPA’s regulatory approach renders the Clean Air Act’s Prevention of Significant Deterioration program “unrecognizable” to the Congress that enacted it. That’s because GHGs are emitted in far greater quantities than traditional pollutants and PSD requirements are based on the quantities of emissions, with facilities emitting more than either 100 or 250 tons per year of any applicable pollutant being subject to an expensive pollution-control regime. For GHGs, those tonnage triggers would transform the PSD program from one aimed at only the nation’s largest sources of emissions. For that reason, after deciding to use PSD to regulate GHGs, EPA then issued a “tailoring rule” to avoid the absurd result by discarding the numerical thresholds that are specified in the law and adopting new ones thousands of times larger.

That decision was under heavy scrutiny at oral argument. Businesses challenging the rule, represented by Peter Keisler, argued that the PSD program is structured to address local air quality concerns and therefore does not extend to emissions of carbon dioxide. PSD’s triggers, monitoring requirements, requirement for local air-quality analysis, and administration by 90 separate state and local permitting authorities all demonstrate that Congress did not intend the statute to address anything like GHG, Keisler argued. So while the statute does apply to “any air pollutant,” that term cannot be interpreted to reach pollutants that cause these other statutory requirements to fail

As a fallback position, Keisler suggested that the Court might distinguish between PSD triggering—that is, whether a given facility is subject to PSD at all—and the requirements that a facility faces once it is required to obtain a permit. Under this view, GHG emissions could not trigger PSD requirements—because triggering is what forced EPA to scrap the statute’s numerical thresholds—but if a facility is subject to PSD due to other emissions, it would then have to control its GHG emissions.

Without endorsing this approach, the Solicitor General acknowledged that it would allow EPA to reach 83 percent of emissions, versus 86 percent under the more aggressive approach, without compromising its administration of the Clean Air Act or requiring it to rewrite the statute.

The Court was also receptive, with Justices Breyer and Sotomayor—seen as friendly to the agency’s position—questioning why it staked out a far more difficult position for so little benefit.

At bottom, the case comes down to the division of power between Congress and the executive branch. As Justice Scalia forcefully explained, Congress sought to withdraw all discretion from EPA as to which facilities would be subject to PSD requirements, while giving it some discretion, in the capacious term “pollutant,” to determine which types of emissions would be regulated. Justice Breyer, on the other hand, argued with equal force that agencies should have the power to make exceptions to avoid absurd or even inefficient results that would otherwise be mandated by statutory text—but even he seemed troubled by EPA’s view that the statute’s use of the term “pollutant” necessarily obligated it to regulate GHGs.

Justice Kagan, for her part, tooks issue with Justice Scalia’s view that the term “pollutant” might be subject to any interpretation that excludes GHGs—despite that EPA itself has adopted a number of different definitions of the term in different programs.

The fundamental problem with the EPA’s position, though, is one that Justice Kagan identified: its solution here gives it nearly infinite discretion to do as it pleases by altering the terms of statutory law to meet its regulatory priorities. The Chief Justice, in turn, questioned whether any “intelligible principle” from Congress guides the agency when it sets its own agenda, and the limits on its own discretion, in this fashion.

The best indication of the agency’s overreaching may be the Solicitor General’s concession that the program would work, just about as well, if the Court strikes down its centerpiece, EPA’s tailoring. That the Administration’s lawyers see this as a sensible compromise only reflects the extent to which the Obama Administration, and its EPA in particular, have stretched the bounds of agency authority in the face of a lack of authorization or express limitations by Congress.

Playing fast and loose with the law has consequences. It’s anyone’s guess whether the Court will accept the proffered compromise, which still does great violence to the textual requirements of the Clean Air Act—particularly PSD’s focus on local air quality. And according to the Solicitor General, there may be no need: EPA, he said, could issue similar regulations under a different Clean Air Program, but didn’t want to because it would be more burdensome and time-consuming for the agency. That point might carry greater weight if EPA hadn’t instead attempted a massive power-grab and then spent the next four years defending actions that may well be struck down as contrary to law.

Disclosure: The author represented the State of Texas, a challenger in this case, before the D.C. Circuit.

Categories: Policy Institutes

Fannie and Freddie Offset Reported Government Spending

Mon, 02/24/2014 - 10:32

Chris Edwards

The federal government took control of mortgage giants Fannie Mae and Freddie Mac (F&F) in 2008 and have bailed them out with $189 billion of taxpayer money.

Today the mortgage companies have returned to profitability and are paying the government dividends. All profits earned by the companies since August 2012 are going to the federal government, as discussed by the CRS and the Washington Post.

How large are the F&F dividends? You can find out from a number of data sources:

  • FHFA (Table 2) shows that Fannie has paid a cumulative $114 billion in dividends to the government, while Freddie has paid $71 billion.
  • FHFA data show that F&F together paid $131 billion in dividends in calendar 2013, which matches what BEA Table 3.2 shows for federal “income receipts from assets” (dividend portion).
  • CBO (p. 101) says that F&F dividends received by the government were $97 billion in fiscal 2013 and will be $81 billion in fiscal 2014. Curiously, the CBO does not report how large future dividends are expected to be because they account for F&F going forward based on a net subsidy approach.

Here is the important thing for budget wonks and reporters: the money now pouring into the Treasury from F&F is not counted as “revenues” but as “offsetting receipts.” Those receipts are subtracted from federal spending before the “net outlays” reported by CBO and OMB, which people may wrongly assume is total federal spending.

Thus the government was reported to have spent $3.5 trillion in fiscal 2013, but without the F&F offset spending was $3.6 trillion. It is a similar story in 2014. And without the F&F dividends, federal deficits would be about $100 billion a year greater than reported.

Looking ahead, a fear is that with the return to profitability of F&F, politicians will get hooked on the inflows of cash, particularly since it has the magical effect of reducing reported spending. Reformers should press on with privatization and severing government ties to the mortgage companies as soon as possible.

A further discussion of offsetting receipts is here. Mark Calabria discusses F&F here and here.

Categories: Policy Institutes

A Few Steps in the Right Direction on Military Spending

Mon, 02/24/2014 - 10:01

Christopher A. Preble

Someone has begun leaking elements of the Pentagon’s FY 2015 budget, and the leakers apparently want reporters to focus on proposed cuts in the U.S. Army. The headline in the New York Times warns readers that the Army will shrink to “a pre-World War II level.” “The proposal,” explains the Times, “takes into account the fiscal reality of government austerity and the political reality of a president who pledged to end two costly and exhausting land wars. A result, the officials [who leaked to the Times] argue, will be a military capable of defeating any adversary, but too small for protracted foreign occupations.”

“You have to always keep your institution prepared” for the unknown, a senior Pentagon official told the Times, “but you can’t carry a large land-war Defense Department when there is no large land war.” 

Reaction from other Beltway insiders has been predictably apoplectic, but one doubts that the American public are terribly worried about a military that might be slightly less likely to get involved in unnecessary and counterproductive nation-building missions in distant lands. The war in Afghanistan started with strong public support, as it was clearly connected to the events of 9/11. It no longer is, and Americans want out. The salespeople for the war in Iraq tried to connect that escapade to 9/11, but the Iraq war effort also lost public support when that rationale fell away, and the costs mounted into the trillions. 

In this case, at least, the public is smarter than the politicians who supposedly represent them. Americans were unenthusiastic about the Libya caper of 2011, and they effectively blocked efforts to embroil the United States in the Syrian civil war last fall. The Pentagon’s budget might finally be reflecting the reality that the American people actually want President Obama to do what he said he was going to do: focus on nation building at home.

But the news is not all good. The Pentagon apparently still intends to retain 11 aircraft carriers, possibly cutting into modernization of the Navy’s surface combatant ships. As had been reported earlier, the venerable A-10 attack aircraft is going away, but the Pentagon remains committed to the troubled F-35. The early details don’t address the possible modernization of the nuclear triad, which is sure to compete with other Air Force and Navy priorities. If the Pentagon isn’t serious about confronting those tradeoffs, the resulting infighting could get ugly.

And there is a hint of the perennial Washington Monument strategy in the details that have been leaked so far. By proposing to cut some very popular programs, Pentagon budgeteers might hope that they can scare Congress into busting the very modest budget caps currently in place. The White House presumably would accept higher taxes in exchange for a bit more spending. Republicans in Congress want domestic spending cuts to offset additional military spending. And neither side seems inclined to add to the deficit. So it is hard to see how that impasse gets broken. For now, the Pentagon’s budget apparently fits the spending cap of $496 billion negotiated late last year, but additional cuts will be needed if the sequestration provisions of the 2011 Budget Control Act take effect in 2016 and beyond.

As more details dribble out today and into next week, it is important to keep everything in context. True, the Army will be smaller, declining from a post-Iraq high of 566,000 in 2011, to perhaps as few as 440,000 active-duty troops, about 40,000 fewer than the late 1990s average. But the force retains enormous capabilities across a range of contingencies. In the words of the senior Pentagon official, this “very significant-sized Army” is “going to be agile. It will be capable. It will be modern. It will be trained.”

That sounds like the kind of force that Americans want and expect. Given rapidly rising personnel costs, and the great political difficulty of reining them in, the only way to achieve actual savings may be a smaller active-duty force. That is what Ben Friedman and I suggested over three years ago, and with this latest proposal, we might actually be heading in that direction.

Categories: Policy Institutes

Save Elephants by Selling Ivory

Mon, 02/24/2014 - 09:23

Doug Bandow

For many people free markets seem cold and calculating.  Maybe it’s the best way to sell, say, automobiles and soap.  But we shouldn’t like the process.  And we certainly shouldn’t base our behavior on markets when basic concepts of right and wrong are at stake.

Of course, markets are no substitute for understanding what the good life is all about.  However, markets offer a powerful tool to reinforce underlying moral values.

One of the great tragedies of the modern age is the slaughter of elephants.  Ivory long has been a widely desired decorative material.

Unfortunately, these days most new ivory comes from poachers.  The killing of elephants has sparked a new form of prohibition, with steadily tighter controls over ivory sales. 

As I note in my new Freeman article:

As a result, elephants have turned into modern day bison—simultaneously owned by no one and more valuable dead than alive.  The result has been devastating for elephant populations in many African states, with upwards of 40,000 elephants being killed annually.

In fact, about the only advocates of the giant creatures are Westerners who see the animals in zoos or on carefully controlled safaris.  In contrast, struggling developing nations must manage wildlife reserves and deter poachers while facing what they see as far more pressing human needs. 

Worse is the situation facing villagers and farmers.  Residents of the industrialized West wax eloquent when talking of faraway elephants, but to locals the creatures are giant rats, threatening and destructive. 

Thus, despite much effort, activists and governments have not been able to stop the massacre of elephants.  Yet faced with the failure of prohibition, the usual suspects only propose more of the same. 

They are pushing countries to destroy existing ivory stockpiles, acquired from elephants which died naturally or were culled, as well as seized from poachers.  Groups also are pressing to ban even the sale of antique ivory, as if outlawing ancient objects could bring back long-dead elephants.  Even more improbable have even been proposals that Western nations deploy military

Without a change of tactics, elephants could disappear from some African countries.  Yet some in the West favor morality lectures rather than practical innovations. 

Moral suasion always is worth a try.  But what happens after preaching fails?

Use markets to reinforce the moral message.  Observed the international conference covering endangered species (CITES):  “provided that their full value (i.e. both intrinsic and extrinsic) is fully realized by the landholders involved, not only will elephants be conserved but so will the accompanying range of biodiversity existing on such land.” 

It’s not a jump into the unknown.  Before 1989 Botswana, Malawi, Namibia, South Africa, and Zimbabwe allowed legal sales.  The same countries generally enjoyed expanding elephant populations, in contrast to the shrinking herds evident elsewhere in Africa.

Even today, after closure of these ivory markets, some governments sell licenses to hunt elephants when the population exceeds the land’s capacity.  Where the money is shared locally, noted analyst Peter Fitzmaurice, “Damaged land and crop losses are not only being tolerated, but villages are doing their best to guard against poachers.”

More needs to be done.  Observed CITES:  “A legal trade in ivory, elephant hide and meat could change current disincentives to elephant conservation into incentives to landholders and countries to conserve them.” 

Some activists appear to believe that it simply is morally wrong to trade in animals, or at least elephants (speciesism lives!).  But markets have been used elsewhere to help save endangered species, such as vicunas, tigers, and crocodiles.

Why not elephants too?

The current system formally treats elephants as sacred, thereby leaving them for dead.  Markets would treat elephants as commercial, thereby keeping them alive. 

If asked, elephants likely would prefer the second policy.  So should we.

Categories: Policy Institutes

Inspectors All Round

Mon, 02/24/2014 - 08:43

Walter Olson

I like everything about this British political poster, including the way the smoke coming out of the chimneys forms tiny question marks. It was employed in the 1929 election against Ramsay MacDonald’s Labour Party. The artist is reported as V. Hicks. If only it weren’t still so relevant! (Wikimedia link)

Categories: Policy Institutes

Spending Restraint in Arkansas

Fri, 02/21/2014 - 16:24

Nicole Kaeding

For the fourth day in a row, the Arkansas House of Representatives has refused to approve the yearly appropriation for its Medicaid program, dubbed the “private-option.” If the legislature continues this refusal and reverses its decision to expand Medicaid under Obamacare, state and federal taxpayers will save billions of dollars, making the Little Rock legislative battle the most important spending fight in the country.

Last spring, Arkansas made headlines for adopting a “free-market” alternative to Medicaid expansion. Instead of expanding using the traditional Medicaid model in which the federal and state government would directly fund enrollees’ care, Arkansas decided to provide subsidies to 250,000 new enrollees, so that they could purchase private health insurance through the bureaucratic exchanges created under Obamacare. By using private insurance, supporters claimed, Arkansas would be able to provide individuals with insurance coverage and protect them from the broken Medicaid system that fails to provide “significant improvements” to enrollees’ health.

Medicaid expansion will cost the federal government $800 billion over the next 10 years if all states expand their qualification thresholds for the program as Obamacare’s architects want. (Currently, only half of the states have obliged.)

Arkansas’ expansion is actually even more expensive than the traditional expansion model envisioned by President Obama and Health and Human Services Secretary Kathleen Sebelius. According to the Congressional Budget Office, private insurance actually costs 50 percent more than traditional Medicaid coverage. Earlier this month, Arkansas Gov. Mike Beebe, a supporter of the private option plan, acknowledged that the plan costs the federal government—read taxpayers—more. Under the conservative estimates from the state, Arkansas’ expansion will cost $20 billion over the next 10 years.

Arkansas’ actions could affect other states. Following its expansion last year, Iowa, Michigan, and Pennsylvania expanded their Medicaid programs using a private-option model costing federal taxpayers billions more. Defunding Medicaid expansion in Arkansas would likely stop the wave of expansion, saving even more public dollars.

If opponents of the private option are successful, Arkansas will do far more to help federal taxpayers this month than anything coming from Washington.

Categories: Policy Institutes

Pages