As I argued in a piece over at Forbes yesterday, western sanctions to roll back Russian action in Ukraine have been largely ineffectual. These sanctions - including asset freezes and visa bans – are ‘targeted’ at those suspected of having influence on Putin. Yet the sanctions, designed to be minimally painful for European states, are toothless - the majority of individuals sanctioned have only a minimal role in policy – and they won’t fix the long-term problem.
Over 150 individuals have been sanctioned by the United States and European Union, including 65 Ukrainian rebels, whose inclusion is presumably intended to inhibit their ability to wage conflict. The remainder are Russian, but most have no access to the corridors of power. Anatoly Sidorov, for example, the Commander of Russian military units in Crimea, is likely uninvolved in the policy formulation process. Other names are stranger, such as Ramzan Kadyrov, head of the Chechen republic. No doubt, he’s a trenchant proponent of the rebels, but he doesn’t influence Russian policy. In all, I estimate only a small proportion of those included in joint sanctions are actually involved in high-level decisionmaking.
The sanctions also vary in impact. Vladislav Surkov, suspected mastermind of Russia’s Crimea strategy, joked with reporters that sanctions didn’t worry him, as his only interest in the United States was Tupac. His point is valid: for those with no assets in Western Europe or the United States, sanctions are merely inconvenient.
Newer sanctions on companies certainly carry some more bite, restricting the ability of Russian banks to raise capital on Western markets. But they still don’t touch Russia’s key source of government revenues, an estimated 50-70% of which come from oil and gas sales. Unfortunately, Russia supplies one-third of Europe’s natural gas, and several countries (e.g., Estonia, Latvia) are entirely dependent on Russian energy. An immediate stop to imports is simply not possible, especially at the start of winter.
In the long-run, however, the most energy-dependent countries are also those most worried about Russia for security reasons. Now is an excellent time for these countries to begin to slowly divest themselves of Russian gas and oil. Dependence is a two-way street, after all: Russia is dependent on European payments for energy, and it will be difficult, time-consuming, and expensive for Russia to find alternate buyers for its resources.
The United States can help Europe with this process. The global energy market is being reshaped by innovations like fracking and liquified natural gas (LNG) transports. Thanks to shale gas, the United States is now one of the world’s largest producers of LNG, with shipments set to leave ports as early as 2015. Indeed, House Speaker John Boehner argued in March that the United States could help to curb Russia’s influence by encouraging natural gas exports to Eastern Europe. But for the sake of their own security, European states must begin the long process of shifting away from Russian energy supplies, and turning off the spigot of energy wealth that keeps the Kremlin afloat.
Patrick J. Michaels and Paul C. "Chip" Knappenberger
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.”
Nic Lewis and Judith Curry just published a blockbuster paper that pegs the earth’s equilibrium climate sensitivity—how much the earth’s average surface temperature is expected to rise in association with a doubling of the atmosphere’s carbon dioxide concentration—at 1.64°C (1.05°C to 4.05°C, 90% range), a value that is nearly half of the number underpinning all of President Obama’s executive actions under his Climate Action Plan.
This finding will not stop the President and the EPA from imposing more limits on greenhouse-gas emissions from fossil fuels. A wealth of similar findings have appeared in the scientific literature beginning in 2011 (see below) and they, too, have failed to dissuade him from his legacy mission.
The publication of the Lewis and Curry paper, along with another by Ragnhild Skeie and colleagues, brings the number of recent low-sensitivity climate publications to 14, by 42 authors from around the world (this doesn’t count our 2002 paper on the topic, “Revised 21st Century Temperature Projections”). Most of these sensitivities are a good 40% below the average climate sensitivity of the models used by the U.N.’s Intergovernmental Panel on Climate Change (IPCC).
Lewis and Curry arrive at their lower equilibrium climate sensitivity estimate by using updated compilations of the earth’s observed temperature change, oceanic heat uptake, and the magnitude of human emissions, some of which should cause warming (e.g., greenhouse gases), while the others should cool (e.g., sulfate aerosols). They try to factor out “natural variability.” By comparing values of these parameters from the mid-19 century to now, they can estimate how much the earth warmed in association with human greenhouse gas emissions.
The estimate is not perfect, as there are plenty of uncertainties, some of which may never be completely resolved. But, nevertheless, Lewis and Curry have generated a very robust observation-based estimate of the equilibrium climate sensitivity.
For those interested in the technical details, and a much more thorough description of the research, author Nic Lewis takes you through the paper (here) has made a pre-print copy of the paper freely available (here).
In the chart below, we’ve added the primary findings of Lewis and Curry as well as those of Skeie et al. to the collection of 12 other low-sensitivity papers published since 2010 that conclude that the best estimate for the earth’s climate sensitivity lies below the IPCC estimates. We’ve also included in our Figure both the IPCC’s subjective and model-based characteristics of the equilibrium climate sensitivity. For those wondering, there are very few recent papers arguing that the IPCC estimates are too low, and they all have to contend with the fact that, according to new Cato scholar Ross McKitrick, “the pause” in warming is actually 19 years in length.
Figure 1. Climate sensitivity estimates from new research beginning in 2011 (colored), compared with the assessed range given in the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report (AR5) and the collection of climate models used in the IPCC AR5. The “likely” (greater than a 66% likelihood of occurrence)range in the IPCC Assessment is indicated by the gray bar. The arrows indicate the 5 to 95 percent confidence bounds for each estimate along with the best estimate (median of each probability density function; or the mean of multiple estimates; colored vertical line). Ring et al. (2012) present four estimates of the climate sensitivity and the red box encompasses those estimates. The right-hand side of the IPCC AR5 range is actually the 90% upper bound (the IPCC does not actually state the value for the upper 95 percent confidence bound of their estimate). Spencer and Braswell (2013) produce a single ECS value best-matched to ocean heat content observations and internal radiative forcing.
Aldrin, M., et al., 2012. Bayesian estimation of climate sensitivity based on a simple climate model fitted to observations of hemispheric temperature and global ocean heat content. Environmetrics, doi: 10.1002/env.2140.
Annan, J.D., and J.C Hargreaves, 2011. On the generation and interpretation of probabilistic estimates of climate sensitivity. Climatic Change, 104, 324-436.
Hargreaves, J.C., et al., 2012. Can the Last Glacial Maximum constrain climate sensitivity? Geophysical Research Letters, 39, L24702, doi: 10.1029/2012GL053872
Lewis, N. 2013. An objective Bayesian, improved approach for applying optimal fingerprint techniques to estimate climate sensitivity. Journal of Climate, doi: 10.1175/JCLI-D-12-00473.1.
Lewis, N. and J.A. Curry, C., 2014. The implications for climate sensitivity of AR5 focring and heat uptake estimates. Climate Dynamic, 10.1007/s00382-014-2342-y.
Lindzen, R.S., and Y-S. Choi, 2011. On the observational determination of climate sensitivity and its implications. Asia-Pacific Journal of Atmospheric Science, 47, 377-390.
Loehle, C., 2014. A minimal model for estimating climate sensitivity. Ecological Modelling, 276, 80-84.
Masters, T., 2013. Observational estimates of climate sensitivity from changes in the rate of ocean heat uptake and comparison to CMIP5 models. Climate Dynamics, doi:101007/s00382-013-1770-4
McKitrick, R., 2014. HAC-Robust Measurement of the Duration of a Trendless Subsample in a Global Climate Time Series. Open Journal of Statistics, 4, 527-535. doi: 10.4236/ojs.2014.47050.
Michaels. P.J. et al., 2002. Revised 21st century temperature projections. Climate Research, 23, 1-9.
Otto, A., F. E. L. Otto, O. Boucher, J. Church, G. Hegerl, P. M. Forster, N. P. Gillett, J. Gregory, G. C. Johnson, R. Knutti, N. Lewis, U. Lohmann, J. Marotzke, G. Myhre, D. Shindell, B. Stevens, and M. R. Allen, 2013. Energy budget constraints on climate response. Nature Geoscience, 6, 415-416.
Ring, M.J., et al., 2012. Causes of the global warming observed since the 19th century. Atmospheric and Climate Sciences, 2, 401-415, doi: 10.4236/acs.2012.24035.
Schmittner, A., et al. 2011. Climate sensitivity estimated from temperature reconstructions of the Last Glacial Maximum. Science, 334, 1385-1388, doi: 10.1126/science.1203513.
Skeie, R. B., T. Berntsen, M. Aldrin, M. Holden, and G. Myhre, 2014. A lower and more constrained estimate of climate sensitivity using updated observations and detailed radiative forcing time series. Earth System Dynamics, 5, 139–175.
Spencer, R. W., and W. D. Braswell, 2013. The role of ENSO in global ocean temperature changes during 1955-2011 simulated with a 1D climate model. Asia-Pacific Journal of Atmospheric Science, doi:10.1007/s13143-014-0011-z.
van Hateren, J.H., 2012. A fractal climate response function can simulate global average temperature trends of the modern era and the past millennium. Climate Dynamics, doi: 10.1007/s00382-012-1375-3.
In a forthcoming article in Regulation California Polytechnic State University economics professor Michael Marlow describes the negative effects on public health of the proposed regulation of e-cigarettes. The FDA proposes to expand its authority granted under of Section 911 of the Family Smoking Prevention and Tobacco Control Act. “Section 911 bans marketing tobacco products as modified risk products without FDA approval. Moreover, manufacturers are unable to inform consumers their products do not contain tobacco.”
The prohibition on marketing e-cigarettes as safer than traditional cigarettes has not been subject to cost-benefit analysis. This is particularly significant given that the literature on e-cigarettes suggests that they help smokers quit. Even the JAMA Patient Page, published by The American Medical Association last January, highlighted a number of potential e-cigarette benefits such as their lack of tobacco and the less toxic nature of e-cigarette vapor compared to cigarette second-hand smoke.
In his back-of-the envelope calculation using quit rates from the published literature, Marlow estimates that the benefits related to e-cigarettes would be between $15.6 and $49.2 billion a year as the result of between 2.4 and 6.4 million smokers becoming former smokers every year. “Prohibiting sales to youth and requiring a clear description of product ingredients may be appropriate. But prohibiting any information regarding potential efficacy in harm reduction is hard to justify given substantial benefits reported in currently available studies.”
Joe McNamara was a former police chief and scholar at the Hoover Institution. He was an outspoken critic of the drug war and devoted much of his time to converting people within the law enforcement community.
Here is a talk that he gave at Cato’s 1999 conference, Beyond Prohibition:
Here is an article he prepared for Regulation Magazine in the wake of the 9/11 terrorist attacks, “The Defensive Front Line.”
Joe McNamara, RIP
BEIJING—China’s university system is growing. However, the People’s Republic of China still lags behind the U.S. and other Western nations. Chinese students increasingly are heading to America for higher education.
While recently playing tourist in Beijing I spoke to a number of young Chinese. They were bright and inquisitive, ambitious and nationalistic. They worried about finding good jobs and were irritated by government restrictions on their freedom.
Beijing’s global influence depends upon domestic economic growth and political stability. And that ultimately depends upon China’s young.
The PRC’s university students today are most likely to become the country’s leaders tomorrow. The number of college graduates has increased to seven million, a four-fold jump over the last decade.
While the number of universities in China is growing, few have national, let alone international, reputations. Undoubtedly that will change over time. Today, however, competition for the few available spots at top schools is extraordinary.
For instance, Peking and Tsinghua Universities are the only Chinese universities among the world’s top 100. They have space only for 6000 new students a year.
Obviously, far more Chinese students could succeed, indeed thrive, at fine universities. So more than 400,000 young Chinese are heading abroad every year.
The Chinese government increasingly accommodates students who desire to study overseas. Indeed, in 2011 President Hu Jintao admitted: “While people receive a good education, there are significant gaps compared to the advanced international level.” The daughter of his successor, President Xi Jinping, attended Harvard University.
The U.S. remains the favored destination of Chinese students. There were 235,000 Chinese students in America during the 2012-2013 school year. In the past most Chinese students were in graduate school, but the share of undergraduates has been increasing—up more than ninefold from 2005 to 2012.
U.S. universities offer a greater variety of courses, making it easier to specialize. They also provide an education more attuned to the global economy in which China is expanding its role.
A foreign degree is particularly helpful for the three of ten Chinese students who remain overseas. Chen Yuyu of Peking University observed: “High-end jobs that should have been produced by industrialization, including research, marketing and accounting, etc., have been left in the West.”
Foreign companies doing business in China also desire employees with a Western-oriented education. Even Chinese students destined to work in China gain an advantage from schooling that sets them apart.
Of course, while many Chinese students are capable of succeeding at foreign universities, many find foreign study difficult. Some prospective applicants turn to private companies to help them prepare.
The Chinese educational surge is good for America. Chinese students deliver $24 billion to the U.S economy.
Moreover, educating many of China’s future leaders is more likely to lead to better bilateral relations and a more peaceful future. Attending American colleges won’t turn Chinese into Americans, but will yield many personal friendships and business relationships.
A common educational experience also may encourage a more liberal international vision. Western schooling certainly does not guarantee humane views, but as I wrote in Forbes online, “a U.S. university education is more likely to reinforce the independent impulses evident in so many Chinese students today.”
They still will be Chinese patriots (and likely quite nationalistic in the eyes of most Americans). But Western-educated Chinese may be more likely to appreciate if not share U.S. worldviews and objectives. At least, the possibility is there.
The U.S.-China relationship is the most important bilateral relationship of the 21st Century. Both nations must work through the inevitable disagreements and make cooperation rather than confrontation the hallmark of their relationship. While there’s no panacea to make that happen, the growing number of Chinese attending U.S. universities is a hopeful sign.
Arkansas businessman, John Stacks, is about to stand trial in federal court. Mr. Stacks is attacking the charges and the conduct of the government agents. Prosecutors don’t like what he’s been saying and asked a judge to squelch their target’s ‘false allegations.’
From the Arkansas Democrat-Gazette:
Prosecutors sought an order preventing Stacks, his attorneys or any witnesses on his behalf from airing the “false and/or misleading” allegations in front of jurors. They cited a video “re-enactment” he posted online of agents executing a search warrant at his business, along with allegations he has aired in a lawsuit over the raid. “At the time that the lawsuit was filed, Stacks knew that a grand jury investigation was under way,” the government’s motion notes….
In July, [Judge] Holmes ordered prosecutors to supply a “bill of particulars” providing more detail about the criminal accusations against Stacks than what was stated in the indictment. This was in response to Stacks’ claim that he couldn’t figure out exactly what he was accused of doing wrong, and that when he asked for details, prosecutors handed over 80,000 un-navigable pages of documents.
The Constitution guarantees free speech. It also says the accused has the right to be informed of the nature and cause of the accusation against him. Two constitutional violations and the trial has not even started yet.
Earlier this year, Florida’s largest teachers union filed a legal challenge to prevent the expansion of school choice. As I explained then:
The Florida Education Association is suing the state of Florida to eliminate the new Personal Learning Scholarship Account (PLSA) program, among other recent education reforms, including an expansion of the state’s scholarship tax credit law. Modeled after Arizona’s popular education savings account (ESA), the PLSA would provide ESAs to families of students with special needs, which they could use to pay for a wide variety of educational expenses, such as tuition, tutoring, textbooks, online learning, and educational therapy. Six families with special-needs children who would have qualified for the program are seeking to intervene as defendants in the lawsuit, represented by the Goldwater Institute’s Clint Bolick.
Today a circuit court judge dismissed the lawsuit, ruling that the plaintiffs lacked standing to sue because they could not show how they were harmed by the law. Last month, the New Hampshire Supreme Court unanimously ruled that plaintiffs lacked standing to challenge the Granite State’s scholarship tax credit law because they also could not demonstrate that they suffered any harm.
However, Florida’s school choice laws aren’t out of the woods just yet. A slew of anti-school choice activists, including the teachers union, state school boards association, and the state PTA, filed two separate legal challenges against the state’s school choice laws, alleging that they violate the state constitution’s historically anti-Catholic Blaine Amendment, which prohibits public funds from being expended at religious schools, and the state’s “uniformity” clause. However, as Andrew J. Coulson recently explained, the lawsuits are without merit:
The first claim, that public monies are being spent on religious education, is simply false. In addition to the U.S. Supreme Court […] the Arizona Supreme Court, and Illinois district courts have also concluded that donations made under education tax credit programs are not public money. Black’s law dictionary agrees, as the Arizona court observed.
Plaintiffs’ second argument is that the tax credit program violates Article IX, Section 1 of the Florida constitution, which states that “Adequate provision shall be made by law for a uniform, efficient, safe, secure, and high quality system of free public schools.” The Florida supreme court ruled in Bush v. Holmes that the state’s publicly-funded school voucher system violated this clause, because “it diverts public dollars” from “the sole means set out in the Constitution for the state to provide for the education of Florida’s children.”
It is worth noting that Florida’s constitution does not stipulate that the uniform system of free public schools must be the sole means of providing for children’s education. On the contrary, it explicitly authorizes—in the very same sentence—such “other public education programs that the needs of the people may require.” The majority on theBush court decided to interpret away this clause, claiming that it referred exclusively to junior colleges and adult education outside K-12 schooling. Though they cited a precedent for this claim (Board of Public Instruction v. State Treasurer, 231 So. 2d 1, 1970), the given case does not support their contention. That precedent merely states that junior colleges and adult education happen to fall within the meaning of “other public education programs,” not that they are the only programs that do so.
Both lawsuits are likely to reach the Florida Supreme Court. If reason prevails, both will be rejected.
Dana Milbank reports in the Washington Post:
The anti-Obama left was out in force. All 22 of them.
As the president stood on the South Lawn to announce the bombing campaign in Syria, liberal demonstrators gathered on Pennsylvania Avenue on the other side of the White House to protest the man they thought was their ally….
“If George W. Bush were launching wars with Congress out of town, oh, it would be flooded,” longtime liberal activist David Swanson said, looking across mostly empty Pennsylvania Avenue “They would be screaming.”
Mark A. Calabria
Economic scholarship tends to operate in silos. That is, banking scholars don’t talk to macroeconomists, etc. Sadly, this is even more so between finance, monetary and experimental economics. In his latest book, Rethinking Housing Bubbles, Nobel Prize winner Vernon Smith, the father of experimental economics, offers a number of lessons that could greatly improve the stability of our financial system.
Some of these include:
- Markets for perishable goods behave generally well and do not tend to display bubbles, whereas asset markets commonly display bubble behavior in experimental settings.
- Allowing margin buying (leverage) significantly increases bubble size and duration for inexperienced buyers, but not for experienced.
- Even sophisticated buyers, when inexperienced, display bubble behavior.
- Experience helps: repeated play in an experimental game brings price behavior closer to fundamentals.
- Informed “inside traders” can reduce size of bubbles.
- Presence of futures markets can stabilize prices in spot markets.
- Additional liquidity increases size and duration of bubbles.
- Bubbles can develop even when participants are fully informed as to operation of the market (they know with certainty future incomes streams and how the market functions).
In terms of policy recommendations, the list above suggests a few things to me. First, policymakers should pay close attention to asset markets. Second, higher down-payments, particularly among first-time buyers, are likely to reduce housing bubbles. Policy should be tolerant of informed buyers, such as hedge funds, buying-up foreclosed homes.
Consumer disclosures, like Truth in Lending, are likely to be useless. Financial literacy should focus less on information and more on experience. Excess central bank liquidity is likely to contribute to asset bubbles.
Perhaps the biggest lesson is that bubbles in experimental asset markets are quite common, especially markets were buyers have little experience and engage in few transactions (sounds like the housing market).
We will touch upon some of these issues, and others, when Vernon Smith comes to Cato next week to discuss his new book. You can register (or watch streaming) here.
Canada, Australia, New Zealand, Britain, and Germany appear to be doing a better job than America at embracing new technologies for air traffic control (ATC). Those countries have restructured their ATC systems as self-supporting entities outside of their government bureaucracies while we still run ours as part of the civil service in the Federal Aviation Administration (FAA).
More evidence that Congress should restructure our ATC system comes from today’s Wall Street Journal:
An effort to modernize the U.S. air-traffic-control system is seeing such a bumpy rollout that costs associated with some of the core technology outweigh potential benefits, according to a report soon to be released by a federal watchdog.
An audit report by the Transportation Department’s inspector general, slated to be released in the next few days, raises new questions about the design, deployment and projected benefits of one of the Federal Aviation Administration’s futuristic ways to enhance monitoring and management of aircraft.
The document is sharply critical about early implementation of ground-based radio towers that are part of a proposed $4.5 billion network designed to track the locations of planes more precisely than current radar. The new system, dubbed ADS-B, eventually aims to rely primarily on satellite-based navigation and tracking.
Some of the general criticism mirrors reports and comments by the inspector general and his staff over the past few years directed at the FAA’s overall air-traffic-modernization initiative, which it calls NextGen.
The federal bureaucracy would not be very good at running a high-tech firm, such as Apple, so it is no surprise that FAA has major problems running the high-tech ATC business. Our ATC system needs better management, higher efficiency, and more rapid innovation. We are more likely to achieve those goals if we privatized the system, as Canada did successfully almost two decades ago.
Gather around young’uns: Back in the antediluvean early 90s, when the digital world was young, a motley group of technologists and privacy advocates fought what are now, somewhat melodramatically, known as the Crypto Wars. There were many distinct battlefields, but the overarching question over which the Crypto Wars were fought was this: Would ordinary citizens be free to protect their communications and private files using strong, truly secure cryptography, or would governments seek to force programmers and computer makers to build in backdoors that would enable any scheme of encryption to be broken by the authorities? Happily for both global privacy and the burgeoning digital economy—which depends critically on strong encryption—the American government, at least, ultimately saw the folly of seeking to control this new technology. Today, you are free to lock up your e-mails, chats, or hard drives without providing the government with a spare key. (The conflict was featured on the front page of Wired Magazine’s second issue, and later detailed in Steven Levy’s lively book Crypto.)
Fast forward to 2014: Apple has announced that the new version of its mobile operating system, iOS, features full disk encryption to protect users’ data, and in contrast to earlier versions of iOS, Apple will not leave itself a backdoor that previously allowed the company to access at least some of the phone owner’s encrypted information. The announcement has been greeted with alarm by cyberlaw professor Orin Kerr, in a series of Washington Post blog entries that seem designed to prove Santayana’s hoary dictum about the perils of ignoring history. Apple, Kerr avers, is playing a “dangerous game” by implementing “a policy that only thwarts lawful search warrants.” Police investigations, he fears, will now be stymied by criminals who refuse to unlock their phones, rendering search warrants to access those devices little more than “a nice piece of paper with a judge’s signature.”
Normally, Kerr’s writing on electronic privacy is marked by an understanding of modern telecommunications technology nearly as impressive as his legal erudition, but in this case, I fear, he has succumbed to an uncharacteristic fit of technopanic. While he writes as though the corporate anarchists at Apple are brazenly thumbing their noses at police with a radical new policy, the truth is more nearly the opposite: It is Apple’s backdoor access that was the abberation, even for Apple. If you encrypt your MacBook’s hard drive with Apple’s FileVault, or your Windows computer with Microsoft’s BitLocker, then unless the user chooses to send either company a backup copy of her encryption key, they can no more unlock those encrypted files than a bookbinder can decipher the private code you employ in your personal diary. Strong encryption is not even new to smartphones: Google’s Android operating system—the world’s most popular mobile platform, running on twice as many devices as iOS—has featured full-device encryption since 2011, and Google has never had backdoor access to those encrypted files. And, of course, there have always been a wide array of third-party apps and services offering users the ability to encrypt their sensitive files and messages, with the promise that nobody else would hold the keys. Does encryption occasionally stymie legitimate law enforcement investigations? Of course—though way, way less often than you might think. The point to remember here, though, is that criminals have had access to backdoor-free encryption for many, many years before Apple announced its new policy without ushering in a terrifying new age of unstoppable criminals and impotent police.
Still, Kerr is right that encryption will now be far easier and more prevalent: Unbreakable encryption is not novel, but the decision to make iOS and Android devices encrypted by default is. Previously, at least, criminals had to be savvy enough to make the choice to use encryption consistently—and many weren’t. Encryption by default, because it protects average crooks as well as sophisticated cybercriminals, is likely to be a practical impediment in many more investigations. Criminals can still be punished for refusing a court order to unlock their devices, but may escape more serious charges that would be provable only with that encrypted evidence. Does this strengthen the case, as Kerr suggests, for legislation requiring device manufacturers to build in backdoors or retain sensitive data? It does not, for several reasons.
First, as Kerr belatedly acknowledges in a follow-up post, there are excellent security reasons not to mandate backdoors. Indeed, had he looked to the original Crypto Wars of the 90s, he would have seen that this was one of the primary reasons similar schemes were almost uniformly rejected by technologists and security experts. More or less by definition, a backdoor for law enforcement is a deliberately introduced security vulnerability, a form of architected breach: It requires a system to be designed to permit access to a user’s data against the user’s wishes, and such a system is necessarily less secure than one designed without such a feature. As computer scientist Matthew Green explains in a recent Slate column (and, with several eminent colleagues, in a longer 2013 paper) it is damn near impossible to create a security vulnerability that can only be exploited by “the good guys.” Activist Eva Galperin puts the point pithily: “Once you build a back door, you rarely get to decide who walks through it.” Even if your noble intention is only to make criminals more vulnerable to police, the unavoidable cost of doing so in practice is making the overwhelming majority of law-abiding users more vulnerable to criminals.
Second, and at the risk of belaboring the obvious, there are lots of governments out there that no freedom-loving person would classify as “the good guys.” Let’s pretend—for the sake of argument, and despite everything the experts tell us—that somehow it were possible to design a backdoor that would open for Apple or Google without being exploitable by hackers and criminals. Even then, it would be awfully myopic to forget that our own government is not the only one that would predictably come to these companies with legal demands. Yahoo, for instance, was roundly denounced by American legislators for coughing up data the Chinese government used to convict poet and dissident Shi Tao, released just last year after nearly a decade in prison. Authoritarian governments, of course, will do their best to prevent truly secure digital technolgies from entering their countries, but they’ll be hard pressed to do so when secure devices are being mass-produced for western markets. An iPhone that Apple can’t unlock when American cops come knocking for good reasons is also an iPhone they can’t unlock when the Chinese govermment comes knocking for bad ones. A backdoor mandate, by contrast, makes life easy for oppressive regimes by guaranteeing that consumer devices are exploitable by default—presenting U.S. companies with a presence in those countries with a horrific choice between enabling repression and endangering their foreign employees.
Third—least obviously, but perhaps most importantly—any backdoor or retention mandate both implicitly assumes and, if it is to be effective, must effectively encourage centralized over decentralized computing and communications architectures. When Kerr contemplates requiring “cellular phone manufacturers” to enable police access to their devices, he tacitly presupposes that the manufacturer is in control of the software running on the device. That may describe Apple’s notoriously tightly integrated ecosystem—but it is hardly the norm for computing devices. Most, of course, come preinstalled with an operating system and some default software packages chosen by the manufacturer, but if the user wants to install new software or a different operating system, she is free to do so. That software may be released by a huge corporation like Apple or Google, with teams of lawyers on retainer to comply with lawful orders and subpoenas, by a tiny startup, by a lone developer working from his basement, or by a dispersed global community of open source coders.
As writer Cory Doctorow explains in his insightful essay “Lockdown: The Coming War on General-Purpose Computing,” the only real way to make mandates of the kind Kerr discusses effective is to prohibit computers (and smartphones, of course, are just small computers with embedded cellular radios) that are truly controlled by their lawful owners:
We don’t know how to build a general-purpose computer that is capable of running any program except for some program that we don’t like, is prohibited by law, or which loses us money. The closest approximation that we have to this is a computer with spyware: a computer on which remote parties set policies without the computer user’s knowledge, or over the objection of the computer’s owner. Digital rights management always converges on malware.
If you saddle Apple, or any other device manufacturer, with a legal obligation to help police unlock a device, you necessarily encourage them to centralize control over the software running on that device. Apple, again, is already pretty centralized, but there’s not much point in requiring Google to release an insecure version of Android if any user can just install a patch that removes the vulnerability. You can require Apple to store iMessage chats for the convenience of police, but if users can simply install an open-source, peer-to-peer chat application that isn’t designed to spy on them, all that does is drive privacy-conscious users (including, of course, criminals—but by no means criminals alone) away from iMessage. In the long run, the options are an ineffective mandate that punishes companies that choose centralized models, or a somewhat more effective mandate that will still be circumvented by sophisticated criminals… but only at the cost of destroying or marginalizing the open computing architectures that have given us decades of spectacular innovation. Even if we ignore very serious concerns about privacy and security, these are both terrible options.
Fourth and finally, we should step back and maintain a little perspective about the supposedly dire position of 21st century law enforcement. In his latest post in the Apple series, Kerr invokes his influential “equlibrium adjustment theory” of Fourth Amendment law. The upshot of Kerr’s theory, radically oversimplified, is that technological changes over time can confer advantages on both police investigators and criminals seeking to avoid surveillance, and the law adjusts over time to preserve a balance between the ability of citizens to protect their privacy and the ability of law enforcement to invade it with sufficiently good reason. As I hope some of my arguments above illustrate, technology does not necessarily provide us with easy Goldilocks policy options: Sometimes there is just no good way to preserve capabilities to which police have grown accustomed without imposing radical restrictions on technologies used lawfully by millions of people—restrictions which are likely to as prove futile in the long run as they are costly. But this hardly means that evolving technology is bad for law enforcement on net.
On the contrary, even if we focus narrowly on the iPhone, it seems clear that what Apple taketh away from police with one hand, it giveth with the other: The company’s ecosystem considered as a whole provides a vast treasure trove of data for police even if that trove does not include backdoor access to physical devices. The ordinary, unsophisticated criminal may be more able to protect locally stored files than he was a decade ago, but in a thousand other ways, he can expect to be far more minutely tracked in both his online and offline activities. An encrypted text messaging system may be worse from the perspective of police than an unencrypted one, but it is it really any worse than a system of pay phones that allow criminals to communicate without leaving any record for police to sift through after the fact? Meanwhile activities that would once have left no permanent trace by default—from looking up information to moving around in the physical world to making a purchase—now leave a trail of digital breadcrumbs that would have sounded like a utopian fantasy to an FBI agent in the 1960s. Law enforcement may moan that they are “going dark” when some particular innovation makes their jobs more difficult (while improving the security of law-abiding people’s private data), but when we consider the bigger picture, it is far easier to agree with the experts who have dubbed our era the Golden Age of Surveillance. Year after year, technology opens a thousand new windows to our government monitors. If we aim to preserve an “equilibrium” between government power and citizen privacy, we should accept that it will occasionally close one as well.
Patrick J. Michaels
People should learn from their mistakes. The last time President Obama took it upon himself to “lead” a U.N. climate fest was at Copenhagen in December, 2009, which, from the point of view of my greener friends, was a notorious failure.
Today, he’s back, this time at Ban Ki-moon’s U.N. “climate summit,” but not a lot of his global peers are going to be there. Prime Ministers from China, India, Canada, Australia and Germany have all decided to stay home.
Together, they emit almost three times what the U.S. does, which means we are going it alone in New York. Any policy we agree to is meaningless. According to the EPAs “Model for the Assessment of Greenhouse-gas Induced Climate Change” (yes, it is MAGICC), if we emitted not another molecule of carbon dioxide between tomorrow and January 1, 2100, the amount of warming that would be prevented is a mere 0.14°C, an amount too small to reliably measure. That’s probably an overestimate, too, as the EPA appears to have overestimated 21st century warming.
EPA assumes that the “sensitivity” of surface temperature to a carbon dioxide doubling is 3°C, an amount very likely far too great, compared to what is being observed. Or, perhaps, compared to what is not being observed, as global surface temperatures have held constant for 17+ years now (actually 19, according to Cato scholar and eco-statistician Ross McKitrick), according to the surface annual temperature history that climate scientists cite the most. So the “saved” warming from any policy is likely to be even less than what MAGICC says.
You’re not going to hear that from the President. As happened at the 2009 Copenhagen disaster, the President and the Secretary-General will declare a roaring success.
In Copenhagen, that meant that all participants had to submit specific action plans to reduce emissions within two months. But, a bit more than a month before the deadline, the U.N.’s climate commissioner, Yvo deBoer, announced that they really didn’t have to. Then he resigned.
There’s still no new international agreement to replace the failed Kyoto Protocol. But, last month, the President got people pretty worked up when he proposed a new, U.N.-sponsored agreement (a treaty—or a modification of an existing one—by any other name) on climate change that he didn’t think would require ratification by a two-thirds vote of the Senate, counter to what is explicitly stated in Article II, Section 2, Clause 2 of our constitution:
[The President] shall have Power, by and with Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur…
Not only is the president going to be quite lonely at the U.N., he could be setting the country up for a huge constitutional conflagration.
It’s not going to happen on his watch, though. Any agreement that he signs on to won’t likely take effect until at least 2016. Even under the most rosy Democrat-wave election that year (one is likely to happen, given the demographics of the Senate crowd that is up for re-election), there’s no way 67 are going to vote to ratify a treaty that differentially harms the U.S. while China and India keep increasing their emissions dramatically.
Of course we’re going to hear the rhetoric, repeated again today, that the U.S. has to “lead by example.” Well, Mr. President, with those big emitters and the developing world saying “no way,” no one is going to follow. In 2012, the last year for which we have reliable data, the U.S. contributed 14% of global carbon dioxide emissions. Together, the five big no-shows emitted almost three times as much as us, and their fraction can only grow as both China and India are determined to develop their economies.
If we were really going to lead by example we would show the world how our free economy has resulted in investments in clean, big power sources like shale gas. The developing world is currently lacking in large sources of dense energy. If we’re going “lead by example,” maybe that example should be that governments should get out of the way of economic development and cleaner energy will follow.
Current regulations, which require companies that issue stocks and bonds to publicly disclose information to investors, allegedly assist those investors in determining the appropriate price for securities as well as detecting fraud. But mandatory disclosures impose heavy costs on issuers of debt and stock. Do the benefits outweigh the costs?
In the forthcoming issue of Regulation Elisabeth De Fontenay, an associate professor at Duke University Law School, answers that question by examining a natural experiment in corporate debt markets.
Corporate bonds are treated as securities and subject to mandatory information disclosure under SEC regulations. In contrast corporate loans are not subject to SEC disclosure regulations because historically such loans were held to maturity by the issuing bank. But over the last 15 years corporate loans have become functionally equivalent to bonds especially at the “high-risk high-return end of the spectrum.” They are underwritten by many investors and securitized and traded in secondary markets.
If regulation produces net benefits for investors, then they would purchase only corporate bonds rather than syndicated loans. But “the market not subject to mandatory disclosure is not only thriving, it is surging past its regulated counterpart.”
How is this possible? De Fontenay explains that in secondary loan markets, investors obtain all the information they need through contract. And that information is more relevant to investor needs than the information mandated by regulation.
Department of Transportation (DOT) employees are abusing their government travel cards, according to a new report from the agency’s Inspector General. The report suggests that DOT officials missed $183,000 in unallowable cash advances and $2.1 million in unauthorized purchases on government travel cards.
The report details numerous examples of abuse such as:
- A Federal Aviation Administration (FAA) cardholder traveled to Houston, Texas, for 3 days and withdrew a $301 cash advance on the last day of the trip at an automated teller machine located 40 miles from his residence.
- Between October 2011 and June 2012, an FAA cardholder collected seven cash advances totaling $719 while not on Government travel. On one occasion, this employee obtained a $104 cash advance on a race day at an Alabama Superspeedway…
- Between February and August 2012, another FAA cardholder collected five cash advances totaling over $1,400 while not on Government travel…
- An FAA employee who was not on Government travel visited a casino in Shawnee, OK, and collected three cash advances totaling $492 from his Government-issued travel card.
- A former OIG employee collected two cash advances totaling $488, more than 2 years after separating from the Agency. DOT’s Financial Management Travel Card Management Policy requires that travel card accounts be closed when an employee leaves the department.
DOT is not the only agency with this issue. Last year, the Treasury Department announced misuse of cards within the Internal Revenue Service. Treasury found “more than 1,000” employees who abused their travel cards in fiscal year 2010 and 2011.
These types of employee ripoffs are not limited to travel cards. A 2008 report from the Government Accountability Office (GAO) found 41 percent of transactions on government purchasing cards violated “basic internal control standards.” Agencies were unable to provide appropriate documentation for 48 percent of large purchases that GAO studied. GAO found: “the Department of the Army could not adequately account for 256 items … each of which cost nearly $100,000.” One employee was able to withdraw $642,000 from her purchasing card over six years before being caught and sent to prison.
Purchasing and travel cards can be efficient in reducing overhead and streamlining processes, but agencies should ensure that proper audit controls are met so that more taxpayer funding is not wasted. Our bloated federal government purchases about $570 billion worth of supplies and equipment each year, so reform in this area is essential.
Nicholas Quinn Rosenkranz
[Cross-posted from The Volokh Conspiracy]
It is now well known that the IRS targeted tea party organizations. What is less well known, but perhaps even more scandalous, is that the IRS also targeted those who would educate their fellow citizens about the United States Constitution.
According to the inspector general’s report (pp. 30 & 38), this particular IRS targeting commenced on Jan. 25, 2012 — the beginning of the election year for President Obama’s second campaign. On that date: “the BOLO [‘be on the lookout’] criteria were again updated.” The revised criteria included “political action type organizations involved in … educating on the Constitution and Bill of Rights.”
Grass-roots organizations around the country, such as the Linchpins of Liberty (Tennessee), the Spirit of Freedom Institute (Wyoming), and the Constitutional Organization of Liberty (Pennsylvania), allege that they were singled out for special scrutiny at least in part for their work in constitutional education. There may have been many more.
The tea party is viewed with general suspicion in some quarters, and it is not difficult, alas, to imagine the mindset of the officials who decided to target tea party organizations for special scrutiny. But federal officers swear an oath to “support and defend the Constitution of the United States against all enemies, foreign and domestic.” It is chilling to think that these same officials who are suspicious of the tea party are equally suspicious of the Constitution itself.
What is most corrosive about this IRS tripwire is that it is triggered by a particular point of view; it is not, as First Amendment scholars say, viewpoint-neutral. It does not include obfuscating or denigrating the Constitution; only those “involved in … educating on the Constitution” are captured by this criterion. This viewpoint targeting potentially skews every national debate about politics or government. And the skew in not strictly liberal; indeed, it should trouble liberals as much as conservatives. The ultimate checks on executive power are to be found in the United States Constitution. Insidiously, then, suppressing those “involved in … educating on the Constitution” actually skews national debate in favor of unchecked executive power.
For example, this IRS tripwire would not be triggered by arguing that the NSA should collect the phone records of every American citizen. But it would be triggered by teaching that the Fourth Amendment forbids “unreasonable searches and seizures.” This tripwire would not be triggered by arguing that the president should unilaterally suspend politically inconvenient provisions of federal law, like ObamaCare. But it would be triggered by teaching that, under Article II, section 3, the president “shall take care that the laws be faithfully executed.” This tripwire would not be triggered by arguing that the president should appoint NLRB members unilaterally. But it would be triggered by teaching that, under Article II, section 2, such appointments require “the Advice and Consent of the Senate.” This tripwire would not be triggered by arguing that the president should target and kill U.S. citizens abroad. But it would be triggered by teaching that, per the Fifth Amendment, no person shall “be deprived of life … without due process of law.” This tripwire would not be triggered by arguing that the president should declare war unilaterally. But it would be triggered by teaching that, under Article I, section 8, “Congress shall have Power … To declare War.” In short, the IRS was “on the lookout,” not for those who preach unlimited executive power, but for those who would teach about constitutional constraints.
Even more to the point, perhaps, this IRS tripwire would not be triggered by arguing that the IRS should discriminate against the tea party. But it would be triggered by teaching that such discrimination constitutes unfaithful execution of the tax laws. And thus, alas, there is a perverse logic to targeting constitutional educators alongside tea party organizations. Political discrimination in the administration of the tax laws is not merely “outrageous,” as President Obama has said; it is an assault on our constitutional structure itself. For an official who has chosen to go down this road and target the tea party, there is an Orwellian logic to targeting constitutional educators as well. After all, they are the ones who might shed light on this very point.
This is a new low for American government — targeting those who would teach others about its founding document. Forty years ago, President Richard Nixon went to great lengths to try to conceal the facts of his constitutional violations, but it never occurred to him to conceal the meaning of the Constitution itself, by targeting its teachers. Politicians have always been tempted to try to censor their political adversaries; but none has been so bold as to try to suppress constitutional education directly. Presidents have always sought to push against the constitutional limits of their power; but never have they targeted those who merely teach about such limits. In short, never before has the federal government singled out for special scrutiny those who would teach their fellow citizens about our magnificent Constitution. This is the new innovation of Obama’s IRS.
“We the People” do not yet know who first decided to target “political action type organizations involved in … educating on the Constitution and Bill of Rights.” But there is at least one person who does know. Ironically, though, Lois Lerner, former director of the Exempt Organizations Division of the IRS, is making full use of her own constitutional education: “I have been advised by my counsel to assert my constitutional right not to testify …. One of the basic functions of the Fifth Amendment is to protect innocent individuals, and that is the protection I’m invoking today.”
Five years ago, President Obama, our constitutional law professor-in-chief, presented his first, ringing Constitution Day proclamation: “To succeed, the democracy established in our Constitution requires the active participation of its citizenry. Each of us has a responsibility to learn about our Constitution and teach younger generations about its contents and history.” Quite so. Perhaps this year, Obama could explain why his IRS would target those who answered this call.
The Supreme Court’s 5-4 ruling granting certain for-profit companies religious exemptions from Obamacare’s contraceptive mandate has of course generated a flurry of debates between conservatives and liberals (with libertarians siding with the right not to be forced by the government to violate your conscience). But what about within the camp that supported the decision in Hobby Lobby? Was there some conservative vs. libertarian split?
Well, as it happens, one of the icons of the libertarian legal movement, my former professor Richard Epstein, contributed an article to the most recent volume of the Cato Supreme Court Review. He concluded that Justice Samuel Alito’s majority opinion reached the right result for the wrong reason, that the Court should’ve rejected the mandate because the government didn’t have a compelling interest to advance not because it didn’t use the least-restrictive means to advance it.
Epstein wasn’t able to attend our Constitution Day symposium, however, so Ed Whelan – president of the conservative Ethics & Public Policy Center and noted legal contributor to National Review Online – took Epstein’s place in discussing Hobby Lobby. Whelan took issue with Epstein’s approach; during the panel [see starting at 35:00] his comments about the Review article were akin to Justice Antonin Scalia’s “blistering concurrences” this term, agreeing with little other than the final judgment.
So this sounds ripe for the libertarian-versus-conservative trope, right? Maybe Epstein focused on liberty and Whelan on religion? Actually not really; (most of) their dispute is more about principle with pragmatism.
Whelan’s main line of attack, which he wrote up for NRO’s Bench Memos blog, is that Epstein failed to take into account the need to get five votes for an ultimate ruling. “The short answer to Epstein’s argument that Alito should have ruled on this basis is that Alito doesn’t have four colleagues who are Richard Epstein.”
Epstein replied – which reply Whelan graciously had posted on NRO, along with the rest of their debate – that they were “operating on different levels.” “Whelan’s short answer is no answer at all. For all I know, Justice Alito could not have garnered even his own vote for the position I espouse.” Epstein argued for the “necessity for normative analysis.”
Whelan retorted that they were both analyzing the “intellectual and tactical” perspectives of the ruling:
Do I think that Epstein’s “normative case” is “wrong or correct”? That depends on what Epstein means by the question. If he is asking whether I think it is (to use his phrase) “an extravagant abuse of state power” to “force a religious group to act against its conscience by supplying standardized products that are available in competitive markets,” my answer is a definite yes… .
But if Epstein is asking whether I think that the term compelling governmental interest in the Religious Freedom Restoration Act should be construed according to libertarian principles, I’ll have to express my doubts. Under an original public-meaning approach to statutory interpretation, the relevant inquiry is whether the public meaning of compelling governmental interest at the time that RFRA was enacted would support Epstein’s position. I’m not aware of any showing that it would.
So here at last we do have some engagement on the same (normative) field of play. Epstein did have one final point to clarify, however, saying that
Whelan’s reading cuts the salami too fine. Justice Alito observes that it is open to “the Government to assume the cost of providing the four contraceptives at issue to any women who are unable to obtain them under their health-insurance policies due to their employers’ religious objections.” He then adds “We therefore conclude that this system constitutes an alternative that achieves all of the Government’s aims while providing greater respect for religious liberty” (emphasis added). In my view, this method is not just a viable alternative, but an ideal method which could apply across the board, including the Wheaton College application [which involved a nonprofit religious employer]. Indeed, what would a better accommodation look like? …
It is therefore a far cleaner resolution to rule in favor of Wheaton College on the merits by making it clear, as I have argued, that the state did not satisfy the compelling-interest standard. The fact that Whelan and I can disagree over the correct reading of the Alito opinion shows at the very least the elusive interpretation of a question that need not have been addressed in the first place.
Epstein has one ultimate sur-reply to that, which ends, amusingly: “How odd that Sotomayor seems to fare better with Epstein than she did with Justice Breyer (who didn’t dissent in Wheaton College).”
I find things to agree with in both writers’ presentation, and I commend this series of writings to anyone who wants to “unpack” (as the academics say) some of the rich debate on Hobby Lobby even among the ruling’s supporters.
Incidentally, I have a book coming out about the case in November; co-authored with David Gans of the Constitutional Accountability Center, we debate the titular question, Religious Liberties for Corporations? Look for it in November.
Schools are stocking up on M16s and modified grenade launchers and holding drills involving shooting blanks in middle and high school hallways, but is the risk really worth the expense and possibility of preemptively traumatizing children?
Groups like Michael Bloomberg’s Everytown for Gun Safety argue that our nation’s schools are dangerous, claiming that there have been 74 school shootings since the Sandy Hook massacre in December 2012 in an infographic that went viral earlier this summer. But a closer look at their numbers revealed that they artificially inflated the statistic by including suicides, accidents, incidents related to criminal activity (e.g. - drug dealing or robbery), and incidences that took place outside of school hours or were unconnected to members of any school community. Moreover, half of those incidences took place on college campuses. Since Sandy Hook, actual number of K-12 school shootings in which the shooter intended to commit mass murder has been ten—a far cry from the “one school shooting per week” that President Obama claimed back in June.
Surely even one such incident is too high, but with nearly 106,000 public and private schools in the U.S., there were shootings at only 0.009% of schools since December 2012. According to the National Center for Education Statstics’ 2013 “Indicators of School Crime and Safety” report, from the 1992-93 school year until the 2010-11 school year, there were between 11 and 34 homicides of youths ages 5-18 at schools each year (including attacks with weapons other than firearms), with an average of about 23 homicides per year. Comparing that to NCES’s enrollment statistics, about 0.000044% of public and private K-12 students were killed at school per year between 1992-93 and 2010-11. That’s about one out of every 2,273,000 students per year. By contrast, the odds of being hit by lightning in a given year is one out of 700,000 according to National Geographic.School Year K-12 Student Homicides Fall Enrollment (thousands) % Homicides 1992-93 34 48,500 0.000070% 1993-94 29 49,113 0.000059% 1994-95 28 49,898 0.000056% 1995-96 32 50,759 0.000063% 1996-97 28 51,544 0.000054% 1997-98 34 52,071 0.000065% 1998-99 33 52,526 0.000063% 1999-00 14 52,875 0.000026% 2000-01 14 53,373 0.000026% 2001-02 16 53,992 0.000030% 2002-03 18 54,403 0.000033% 2003-04 23 54,639 0.000042% 2004-05 22 54,928 0.000040% 2005-06 21 55,224 0.000038% 2006-07 32 55,524 0.000058% 2007-08 21 55,762 0.000038% 2008-09 17 55,966 0.000030% 2009-10 19 56,186 0.000034% 2010-11 11 56,480 0.000019% Maximum: 0.000070% Minimum: 0.000019% Average: 0.000044%
It makes sense for schools to take precautions and have contingency plans, but they should keep a sense of perspective. School shootings, especially the mass casualty incidences like Sandy Hook, are exceedingly rare. Schools should dispense with the M16s, grenade launchers, and armored vehicles.
The Small Business Administration’s (SBA) stated mission is to aid small businesses and strengthen the economy. Under its popular 7(a) program, SBA provides private lenders with loan guarantees. In the case of default, SBA steps in to cover up to 85percent of the lender’s losses.
This structure encourages lenders to provide more loans, but also encourages the approval of riskier loans. The lenders are insulated from most of the risks of default.
A new analysis conducted by the Wall Street Journal confirms that this arrangement induces SBA to provide loans that result in a large number of defaults. Default rates for some franchise companies can be as high as 40 percent. According to the Wall Street Journal:
Quiznos, Cold Stone Creamery, Planet Beach Franchising and Huntington Learning Centers Inc. ranked among the 10 worst franchise brands in terms of Small Business Administration loan defaults.
Franchisees of the 10 brands in the ranking defaulted at more than double the rate for SBA borrowers who invested in all other chains, according to a Wall Street Journal analysis of charge-offs of all SBA-backed franchise loans in the past decade.
Put another way, franchisees of those 10 brands have left taxpayers on the hook for 21% of all franchise-loan charge-offs in the past decade, collectively failing to pay back $121 million in SBA-guaranteed loans from 2004 through 2013.
Thirty percent of the loans provided to Quiznos and Cold Stone Creamery franchises ended in default. The losses from loans to Quiznos franchises totaled $38.4 million during the 2004 to 2013 period, while losses to Cold Stone Creamery amounted to $34.1 million.
This is not the first time that SBA’s franchise lending has been criticized. In a report focused on franchises, SBA’s Inspector General noted in 2013 that SBA “had not implemented a program or process to monitor risk in its portfolio.” The report continues: “SBA did not monitor portfolio segments to identify risk based on default statistics…SBA continued to guarantee loans to high-risk franchises and industries without monitoring risks, and where necessary, implementing controls to mitigate the risks.”
Franchise businesses are an important component of SBA’s activities. In its new analysis, the Wall Street Journal points out that “SBA guaranteed nearly $18 billion in 7(a) loans [in 2013], including $2 billion for franchisees.”
Taxpayers are picking up the costs of these government loan guarantees. SBA charges lenders fees to mitigate the costs of default, but the fee amount seem to be too low. Most recent years, SBA has received a net outlay, or subsidy, from Congress.
What should be done? At the very least, SBA should take its inspector general’s recommendations and review its practices regarding franchise loans to reduce the number of defaults. Ideally as argued on www.downsizingovernment.org, SBA should be closed down.
Another federal agency has screwed up. This time it is the Secret Service, which almost allowed an intruder to make a surprise visit on the Obamas. The Washington Post reports:
The Secret Service on Saturday launched a security review to learn how a man carrying a knife was able to get inside the front door of the White House on Friday night after jumping a fence and sprinting more than 70 yards across the North Lawn.
In response to the failure, Rep. Jason Chaffetz observed that “the Secret Service has a serious management problem.” According to the Post:
The service, which once enjoyed a sterling reputation as an elite law enforcement agency, has struggled with some embarrassing episodes recently and the perception that its leadership is lagging in the best security strategies. In spring 2012, the service faced a humiliating moment when a dozen agents were shipped home from a presidential trip in Cartagena, Colombia, where they were implicated in a night of carousing and boozing with prostitutes.
The latest fence-jumping incident is no laughing matter, but this line from the Post did make me chuckle: “Former agents said they fear the breach may be related to a severe staffing shortage the agency has struggled with in the last year in its Uniform Division.”
Staffing shortage? How is that possible when the Secret Service budget has doubled in real (inflation-adjusted) terms since 1998—from $0.9 billion to more than $1.8 billion? The chart shows the particularly strong growth during the George W. Bush years.
Andrew J. Coulson
Just over a week ago, Swedes threw out the relatively pro-market coalition that had goverened the country for the past 8 years, handing power (though not an outright majority) to a new left-of-center coalition. Swedish students’ falling scores on international tests were a key cause of public dissatisfaction, and they have been widely blamed on a nationwide voucher-like school choice program introduced during the early 1990s. But as I point out in an op-ed in yesterday’s Svenska Dagbladet, the facts simply don’t support that narrative. Here’s the English draft of the op-ed:
Sweden’s collapsing performance on international tests was clearly a factor in the recent election, and redressing that slide will be a priority for the new government. A good first step in charting the way forward is to understand what has gone wrong and what has gone right in the past. Unfortunately, the most popular narrative about Swedish education trends is badly mistaken.
Many have blamed Sweden’s falling international test scores on the proliferation of free schools, merely because the decline is thought to have followed their large-scale expansion. This would be a common logical fallacy even if the timing were correct—but it isn’t.
Between 1995 and 2011, Swedish math scores on the Trends in International Mathematics and Science Study (TIMSS) fell by a massive 56 points. But the vast majority of that decline—41 points—had already taken place by 2003. In that year, 96 percent of Swedish students were still enrolled in government schools.
Another international test, the Programme on International Student Assessment (PISA), began in the year 2000 and has the advantage of breaking out the scores for government and private schools. The last PISA test was administered in 2012, by which time government school scores had fallen by 34 points while free school scores had fallen by only 6 points.
Anders Böhlmark and Mikael Lindahl’s long-term nationwide study helps to explain these trends: increased local competition from free schools actually raises the performance of students in both sectors—on both national and international tests. But, since free schools still enroll a small fraction of students nationwide, the benefits of this competition have yet to be felt in many areas.
Of course, none of this is to suggest that there are no bad private schools. There has never been an education system in history capable of producing only good schools. The best that can be hoped for is that unsuccessful schools close while good schools expand. And that is precisely what has been happening in Sweden.
Much has been made of the failure of JB Education, which attracted too few students to remain financially viable, and was forced to shut down. This was regrettable for everyone directly concerned, in the short run. In the long run, it is better than any realistic alternative. In most countries, including the United States, atrocious government-run schools are able to continue operating indefinitely because they face no meaningful competition—the poor parents they most often serve simply cannot afford any alternative. These schools are numerous enough that a term has been coined to describe them: “dropout factories.” Swedish families are lucky that they can far more easily escape such schools.
Not only does the Swedish system pressure failing schools to close, it encourages good ones to expand. International English Schools is one of the highest-performing school networks in the country, even after controlling for the parental level of education and immigrant background of its students. It is also one of the fastest growing, now operating 25 schools serving nearly 18,000 students. IES has plans to continue growing so long as demand for its services remains unmet. But if IES’s emphasis on academics and civil classroom behavior seems too traditional for some families, there are many other options to choose from. Another large and successful network is Kunskapsskolan, which allows students to proceed through the curriculum at their own pace, combining tremendous student autonomy with weekly one-on-one meetings with teachers.
But not all good private schools grow. Specifically, non-profit schools tend not to build large networks, no matter how good they are. As a result, thousands of students who might benefit from their services never get the chance to do so. The only good schools that consistently “scale-up” in response to rising demand are those operated as for-profit enterprises. This is not a coincidence. Building a network is both risky and expensive. The profit-and-loss system provides both the resources and the incentives that allow and encourage successful enterprises to grow.
Sweden is fortunate to have harnessed that system to spur the growth of its high performing schools. Chile does the same thing, and has become not only the highest-performing nation in Latin America but also one of the fastest-improving countries in the entire world on international tests. If Sweden wishes to become a fast-improving nation educationally, the evidence strongly supports preserving the entrepreneurial freedoms and incentives that promote the growth of successful education networks.