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Chris Edwards

There are major spending battles on the Washington agenda this year, including over the defense budget. Congress needs to decide whether to stick with capped spending levels agreed to in 2011, or allow its past restraint efforts to unravel.

Republican defense hawks want to bust the spending caps, while the small-government wing of the party wants to hold the line. Rep. Justin Amash (R-Mich.) told the Wall Street Journal, “We’ve been spending too much on defense for years because we have a lot of waste within the Department of Defense … There’s room to cut, and I think we are perfectly capable of staying within the sequester caps.” Sen. Rand Paul (R-Ky.) noted, “To defend ourselves, we need a lean, mean fighting machine that doesn’t waste money on a bloated civilian bureaucracy.”

Amash and Paul’s position is buttressed by a new GAO study on the management bloat in Department of Defense (DoD) headquarters.

It is also buttressed by looking at DoD civilian and uniformed employment levels. The chart below shows that civilian DoD employment has grown 105,000 since 2001, while uniformed employment has grown just 22,000. Based on numbers in the chart, the ratio of bureaucrats-to-soldiers has increased from 47 percent in 2001 to 54 percent in 2014. But with the advance of computer power and other technologies, one would think that the bureaucratic overhead costs of our fighting force would be falling over time, not increasing.

How much could we save by improving bureaucratic efficiencies, and cutting the number of Pentagon civilians by at least the apparent excess of about 100,000? Annual pay and benefits for federal civilians is about $120,000 a year, so we could save roughly $12 billion a year by trimming this aspect of Pentagon bloat.

All data from the “Analytical Perspectives” sections of the FY2003 and FY2015 federal budgets. Data for 2014 are OMB estimates.

Caleb O. Brown

For School Choice Week, Austin Bragg and I produced a short documentary that details the struggle to adopt and implement a scholarship tax credit program in New Hampshire. The program had to overcome a governor’s veto, a repeal fight and a lawsuit that went to the New Hampshire Supreme Court. We talked with three families that have benefitted from the scholarship program and people working to keep the program.

Live Free and Learn: Scholarship Tax Credits in New Hampshire

Cato’s Jason Bedrick has detailed the history of this program at length. He also played a key role in adopting and evaluating the results of the scholarship program in the face of sometimes less-than-civil opposition.

On Monday, we hosted an event featuring Jason and two other folks who played a key role keeping scholarships alive in New Hampshire where we discussed the potential for scholarship tax credits in other states with so-called “Blaine amendments.” And feel free to snag a free DVD of our short film while supplies last.

Andrew J. Coulson

Georgia has a schoalrship donation tax credit program that makes it easier for lower-income families to afford private schooling—if that’s what they think is best for their children. The program is so popular that the cap imposed upon it by the legislature was reached within the first few hours of January 1st, this year. Over at Education Next I argue today that raising the cap would do a lot of good for Georgia children.

Neal McCluskey

If you like feeling conflicted, you’ll love being a libertarian thinking about President Obama’s recent proposal – and even more recent rescinding of that proposal – to essentially end 529 college savings plans. The President proposed killing the ability to use funds saved under a 529 plan tax free to pay for college, which would have gutted the program’s real value.

On one side, a libertarian should be aggravated by such a proposal. The goal certainly seemed to be income redistribution, generating new revenues from relatively well-to-do Americans and giving it to (presumably) less well-to-do Americans with free community college and expanded “refundable” tax credits. It also seemed intended to support a divisive, rhetorical war of the “middle class” vs. “the rich” (though certainly many people who use 529s consider themselves middle class). And unlike federal grants, loans, and those refundable credits that are often essentially grants for people who don’t owe much in taxes, 529s are about people saving their own money to pay for college, not taking it from taxpayers.

On the other side, libertarians – heck, everyone – should want a simple tax code that isn’t riven with special breaks, loopholes, and encouragements to do things politicians decide are worthy but which have massive negative, unintended consequences. And when it comes to higher education, those consequences are huge, including rampant tuition inflation, awful completion rates, major underemployment, serious credential inflation, and a burgeoning academic water park industry. And where does the federal government get the authority to incentivize saving for college in the first place? Not in the Constitution.

So how should libertarians feel about the demise of the President’s 529 plan? I guess a little sad, because the Feds simply shouldn’t be in the business of encouraging college consumption. Even more, though, they should feel angry, because we are so deep in a federally driven, college-funding quagmire.

Doug Bandow

Ukraine’s military has lost control of the Donetsk airport and the rebels have launched another offensive. Fortune could yet smile upon Kiev, but as long as Russia is determined not to let the separatists fail, Ukraine’s efforts likely will be for naught.

As I point out on Forbes online:  “Only a negotiated settlement, no matter how unsatisfying, offers a possible resolution of the conflict. The alternative may be the collapse of the Ukrainian state and long-term confrontation between the West and Russia.”

Ukraine’s most fervent advocates assume anyone not ready to commit self-immolation on Kiev’s behalf must be a Russian agent. However, there are numerous good reasons for Washington to avoid the fight.

1) Russia isn’t Serbia, Iraq, Afghanistan, or Libya.

While the Obama administration has resisted proposals for military confrontation with Moscow, a gaggle of ivory tower warriors has pushed to arm Ukraine, bring Kiev into NATO, and station U.S. men and planes in Ukraine. These steps could lead to war.

Americans have come to expect easy victories. However, Russia would be no pushover. In particular, Moscow has a full range of nuclear weapons, which it could use to respond to allied conventional superiority.

2) Moscow has more at stake than the West in Ukraine.

Ukraine matters far more to Moscow than to Washington. Thus, the former will devote far greater resources and take far greater risks than will the allies. The Putin government already has accepted financial losses, economic isolation, human casualties, and political hostility.

3) Alliances should enhance U.S. security, not provide foreign charity.

It’s impossible to blame Ukraine for wanting the West to protect it. But it makes no sense for the allies to do so. Adding Ukraine to NATO would dramatically degrade U.S. security by transforming a minor conflict irrelevant to Washington into a military dispute between America and Russia.

4) Security guarantees and alliance commitments often spread rather than deter conflict.

NATO advocates presume that membership would dissuade Russia from taking military action. Alas, deterrence often fails. In World War I alliances become transmission belts of war.

5) U.S. foreign policy should be based on the interest of America, not other nations.

The greatest distortion to U.S. foreign policy may come from ethnic lobbying. There’s nothing wrong with having affection for one’s ancestral homeland, like Ukraine. But U.S. foreign policy should be designed to benefit America, not other nations.

Some advocates for Kiev argue that Ukraine deserves support since France helped the American colonists win their independence. But France intervened in the American Revolution because Paris believed it was in France’s interest to weaken Britain. Going to war with Moscow would offer Americans no similar benefit.

6)  It’s Europe’s turn to act.

If Ukraine matters geopolitically, it is to Europe. But most NATO members continue to shrink their militaries. It is time Europe did the military heavy-lifting.

7)  A negotiated settlement is the only solution. 

Unfortunately, weaker parties often must make accommodations. During the Cold War Finland maintained its domestic liberties by not antagonizing the Soviet Union.

The world is similarly unfair to Ukraine today. Military victory is unlikely. Stalemate threatens Ukraine with economic crisis.

The allies hope that sanctions will force Russia to concede. But Putin won’t retreat voluntarily.

Massive public discontent could spark a popular revolution. However, foreign penalties more often cause people to rally around their governments. As of last month Putin’s popularity was at 85 percent.

Moreover, the prospect of Weimar Russia should cause Ukrainians and their friends in the West to be careful what they wish for. A Russia in crisis likely would not be democratic and docile.

Moscow could say no. If so, it is better to find out now than to do so only after suffering through an extended Cold War lite.

The Ukraine-Russia conflict is an unnecessary tragedy. Thankfully the ongoing battle doesn’t much threaten America. However, the only ending in something other than disaster is likely to come through negotiation. Instead of acting as a belligerent party, Washington should focus on shaping a diplomatic solution.

Ilya Shapiro and Julio Colomba

The Equal Employment Opportunity Commission (EEOC) is responsible for enforcing federal laws against employment discrimination. Along with enforcing these laws—most notably, Title VII of the Civil Rights Act, which outlaws discrimination on the basis of race, color, religion, sex, or national origin—the EEOC tells employers how not to discriminate. For example, the EEOC’s Best Practices for Eradicating Religious Discrimination in the Workplace instructs that an employer should “avoid assumptions or stereotypes about what constitutes a religious belief” and that managers “should be trained not to engage in stereotyping based on religious dress and grooming practices.” 

It’s passing strange, then, that the government is now arguing before the Supreme Court not only that employers can do these things, but that they must, or face liability under Title VII, in the context of reasonable accommodations that companies have to make for religious practice. Discerning when such accommodations are necessary can be difficult because people practice religion differently—and often in their own personal, non-obvious way. 

Title VII has thus traditionally been understood to leave it to the employee to determine when a company policy conflicts with his or her religious practice and then to request an accommodation. This interpretation leaves employers free to pursue neutral policies up to the point that they have actual knowledge of such a conflict. 

In the last several years, however, the EEOC has apparently taken the position that employers must pry into their employees’ religious practices whenever they have an inkling of suspicion that an accommodation may be needed. Abercrombie & Fitch is one company that has found out just how impossible a situation this puts employers into. When Abercrombie decided not to hire Samantha Elauf as a sales associate based on her violation of the company’s “Look Policy”—a branding guide that, among other things, prohibits the wearing of clothing generally not sold by the store, like Elauf’s black headscarf—the company found itself on the wrong end of a government lawsuit. 

A federal district court ruled for the EEOC even though Elauf never informed them that she would need a religious accommodation.  The U.S. Court of Appeals for the Tenth Circuit reversed, holding that an employer must actually know about a religious practice before it can be held liable for discriminating on that basis. The Supreme Court took the case at the EEOC’s request and Cato has now filed a brief in support of Abercrombie. 

We argue that employers must have actual knowledge of the potential need for a religious accommodation before they can be held liable for violating Title VII because the EEOC hasn’t offered any coherent alternative and because employers already know how to use this tried-and-true actual-knowledge standard. In addition, the burden of identifying the need for accommodations has to be on the employee because, after all, it’s their religion, and thus they are in a significantly better position to identify conflicts than employers—who aren’t mind-readers and shouldn’t have to rely on crude stereotypes or pry into employees’ personal lives. 

An opposite rule would create an awkward and uncomfortable scenario all-around. The EEOC’s position is short-sighted; if the agency somehow prevails, it will have done what federal agencies do best: turn minimal burdens for some people into heavy burdens for everyone.

The Supreme Court will hear argument in EEOC v. Abercrombie & Fitch Stores, Inc. on February 25.

Peter Van Doren

By now we have all heard of the disruptive force that is the ridesharing company Uber. The company, which is beating traditional taxi companies at their own game, has caused headaches for competitors and regulators alike. Moreover, as Eduardo Porter argues in his New York Times column, Uber also brings the entire regime of occupational licensing into question.

Porter notes that Uber has made the public much more aware of the anti-consumer inefficiencies in the regulated taxicab industry. The medallion system limits the number of taxis on the roads.  Thus, the supply of cabs is much less than demand, which reduces the incentives for taxi owners to innovate and care about consumers.  Uber, outside of this licensing regime, has thrived while providing wages that are on par with (or more than) licensed taxi drivers.  This is possible because drivers (which are not in short supply) do not benefit from the limited number of medallions; only the medallion owners benefit.    

Porter cites the research of University of Minnesota economist and occupational licensing expert Morris Kleiner. Kleiner’s work describes how the labor market has changed since the early 1950s from blue collar and unionized to white collar and licensed. Protectionism has not declined. It has been transformed.   

The mischief created by occupational licensing appears to be a concern even for Democrats. The Obama administration has sought to streamline the licensing process nationwide, and the president’s Council of Economic Advisors seeks to subject licensure to cost-benefit analysis. 

For more from Morris Kleiner, see his recent essay from the Cato Reviving Economic Growth forum, or my other blog posts on his work.

Doug Bandow

Greece’s parliamentary elections could reshape Europe. In voting for the radical left the Greek people have reinvigorated home rule and democracy across the continent.

Greece has been in economic crisis seemingly for eternity. Even in the Euro the system could not generate the growth necessary to repay the debt:  the economy was hamstrung by enervating work rules, corrupting political influences, profiteering economic cartels, and debilitating cultural norms.

The inevitable crisis hit in 2009. Athens couldn’t make debt payments or borrow at affordable rates. Nor could Greece devalue its currency to make its products more competitive. The European “Troika” (European Central Bank, European Commission, and International Monetary Fund) developed a painful rescue plan.

Syriza, meaning Coalition of the Radical Left, arose to challenge the two establishment parties. Headed by Alexis Tsipras, Syriza won 36.2 percent and 149 seats, two short of a majority, on Sunday.

Syriza offered dreamy unreality:  free health care and electricity along with food subsidies, pension increases, salary hikes, and more public sector jobs. Billions in new revenue is to magically appear.

Most important, Syriza promised international debt renegotiation. Current debt runs a crushing $270 billion, or 175 percent of GDP (up from 109 percent in 2008).

European officials expressed hope that Tsipras would move to the center after winning office. But abandoning the promises that got him elected would wreck his credibility. Doing so also would threaten the unity of Syriza, a heterogeneous collection of smaller parties.

However, Athens does not have much time to win concessions. The current bailout plan expires at the end of February. Without a replacement program Greek banks would no longer have access to the European Central Bank.

Athens has few other revenue sources. Since the Syriza government cannot print Euros, it would have no way to fund a budget estimated to be in the red even before any new spending. Moreover, Athens would face default on its debt payments and a possible financial crisis.

At this point the only answer might look like exiting the Euro, or “Grexit,” which would allow Athens to print money freely. The process would be difficult, but would free Greeks to learn from their mistakes and find their own path.

Still, Syriza says it remains committed to a negotiated settlement within the Eurozone. But European leaders so far insist that the bail-out essentials cannot be renegotiated.

Syriza assumes its creditors are bluffing because they want to keep Greece in the Euro. That’s no longer clear, however. Greece accounts for just two percent the Eurozone’s collective GDP. The prospect of Greece’s departure no longer triggers panic elsewhere in Europe.

Indeed, if the EU does not hang tough, it will encourage other hard-hit governments to demand similar concessions. Moreover, a slowing economy has reduced the German public’s willingness to act as the Europe’s banker of last resort.

The political consequences might be more important than the economic impact. Grexit would return economic decisions to Athens.

Leaving also might stop further continental consolidation. The 19-member Eurozone is unstable because the unified monetary policy is not matched by unified budgetary policy. Eurocrats have been trying to expand their control. Moreover, while the Eurozone is separate from the 28-member European Union, a fracturing of the first would exacerbate tensions in the second.

A Eurocratic elite, consisting of politicians, academics, businessmen, journalists, bureaucrats, and lobbyists based in Brussels and national capitals, favors European consolidation in part because the system suppresses public accountability. But now popular opposition is exploding.

Euroskeptic parties did well in last year’s election for the European Parliament and having been gaining votes in national contests as well. If Syriza successfully flouts the Brussels consensus popular opposition to the EU as well as Euro is likely to grow.

As I note in Forbes online: “Europe will survive, whatever the fate of Greece, the Euro, and the EU. But the latest election in the birthplace of democracy offers hope for greater popular accountability and control across the continent. For this Tsipras and Syriza deserve Europe’s thanks irrespective of what happens next in Greece.”

Daniel R. Pearson

Interest groups in the United States have focused on the possibility of including provisions in trade agreements with the intent of countering currency manipulation.  The concern is that another country may choose to reduce the value of its currency relative to the U.S. dollar in order to encourage its businesses to export more goods to the United States.   Such currency realignment also would tend to make it more expensive for the devaluing nation to import products from this country.

It’s true that an adjustment in currency exchange rates – regardless of the reason for the adjustment – can have an effect on trade flows.  U.S. industries that export to foreign customers, or compete with imported goods in the domestic marketplace, understandably would prefer that currency relationships not become skewed against their commercial interests.  Currency stability improves the business climate by making it easier to build long-term relationships with customers and suppliers. 

However, currency exchange rates have fluctuated throughout recorded history.  Sometimes those changes may be driven by a government’s conscious desire to devalue its currency.  More often the variability in exchange rates reflects fundamental economic realities.  Economies that experience growing productivity and rising prosperity should not be surprised to find that market pressures cause their currencies to strengthen.  The reverse is true for countries that are growing slowly or not at all. 

A shift in exchange rates changes a country’s “terms of trade,” which is a term  used by economists to describe the ratio of a country’s export prices to its import prices.  From a U.S. perspective, if another country sets its currency at an artificially low level relative to the dollar, the U.S. terms of trade will improve.  The United States will be able to obtain a greater value of imports for the same value of exports.  Exporting the same number of airplanes and soybeans as before will pay for the importation of larger quantities of shoes, coffee, and automobiles. 

The country that chooses to undervalue its currency will be placing an artificially low value on the output created by workers and capital in its domestic economy.  It will, in effect, be selling its exports for less than their true economic worth, thus transferring wealth to the United States.  People in this country experience meaningful increases in their standards of living at the expense of the country that has devalued.

Yes, most buyers like to get a good deal.  An increase in affordable imports generally doesn’t strike consumers as a bad thing.  Assuming those imports don’t compete too directly with goods and services produced widely in the United States (think of coffee, bananas, shoes, clothing, diamonds, rare earth metals, etc.), they tend to be well accepted even by people with mercantilist tendencies.   Some imports that do compete directly with U.S. products – such as crude oil or cars – also may not raise strong political objections, either because domestic demand is larger than can be served solely by domestic supplies, or because consumers desire a variety of choices.

The politics of affordable imports become more complicated when those products compete directly with goods and services produced in the importing country.  Competition always is a challenge, whether it comes from other domestic firms or from overseas.  Firms often struggle to deal with forces as diverse as changing technology or changing consumer tastes and preferences.  Not all firms survive forever.  Rather, the process of creative destruction keeps the economy in an ongoing state of reinvigoration and renewal.  There’s no doubt, though, that an increase in imports can create adjustment headaches for import-competing U.S. companies and their workers.

The good news is that the United States already has a policy framework with which to address unfairly priced imports, regardless of whether those imports relate to currency undervaluation.  U.S. trade remedy laws allow industries to seek antidumping or countervailing duty (AD/CVD) protection against imports that may be injuring domestic producers.  From a free-trade perspective, it’s important to understand that U.S. trade remedy laws leave a lot to be desired.  They generally are seen to be relatively protectionist – slanted in favor domestic industries over imports. 

However, trade remedies are a better policy response (even though suboptimal) to currency manipulation than would be the case for special provisions in trade agreements.  Trade remedies are relatively selective.  They are applied only to unfairly priced imports that are troublesome to U.S. industries, and only after those producers have demonstrated that they’ve been injured.  On the other hand, currency provisions included in trade agreements would apply to all imports from the offending country.  American consumers would end up paying more even for tea and T-shirts, for which there is little or no U.S. production.  Given the broad negative implications of using trade agreement provisions to counteract currency manipulation, U.S consumers would be much better off dealing with the narrower negative consequences of AD/CVD measures.

A concluding thought:  Since currency undervaluation by other countries serves to transfer wealth to the United States, should we consider finding some diplomatic way to thank them?  Such a gesture likely would do far more good than including misguided currency provisions in trade agreements.  It might help prompt policymakers around the world to rethink the plusses and minuses of allowing currencies to get out of alignment.

(For more detail on issues surrounding currency manipulation, see this article from Forbes.com by my colleague, Dan Ikenson.)

Simon Lester

Yesterday, my colleague Bill Watson made the following point on this blog: “Perhaps China’s growing use of subsidies can change the dynamic, making it finally possible for international negotiations to take on U.S. agriculture subsidies.”  I’ve been thinking the same thing.  When it was just a few rich countries subsidizing, the political dynamic of subsidy reduction was challenging.  But if we are all subsidizing now, can’t we all just agree to stop?  Unfortunately, I fear the reality is going to be less promising than we might hope.

I confess that I did get a little excited and optimistic when I read a recent piece from U.S. Trade Representative Michael Froman, in which he said:

Take the example of agriculture, the subsidies for which have proven one of the toughest issues to tackle. In 2008, the proposed solution was that developed countries would cut their agricultural subsidies while developing countries would not.

But much has changed since that time. Just last year, a group representing agriculture-exporting countries, developed and developing alike, published a report listing the top four users of trade-distorting agricultural subsidies in today’s world, with India first, followed by China, the European Union, and the United States.

In a global commodities market, this double-standard makes no economic sense. In reality, trade-distorting subsidies from emerging economies have the same impact on global commodity prices as trade-distorting subsidies from developed countries. The United States is willing to wade back into the complex thicket of agricultural trade negotiations, but only if the discussion reflects today’s reality.

Parsing his words, he says the United States is “willing to wade back” in to these issues.  That’s slightly positive, suggesting the possibility of action.  But it’s going to take a bit more than this.  At some point, someone has to make an actual concrete proposal to eliminate or reduce agriculture subsidies.  That is, someone has to lay out specific details of a proposal for everyone to rein in subsidies.  It would be great if it were the United States, but it could be any of the big subsdizers.  However, it’s not going to happen unless and until someone takes this initiative.

Does the political will exist in Washington right now?  Ambassador Froman’s op-ed notwithstanding, it doesn’t seem like it.  When there is talk of agriculture subsidies in trade negotiations, it is very limited.  In the context of the Trans Pacific Partnership, the current talk is going like this (subscription only): 

The United States has indicated it is willing to agree to an unconditional and complete ban on agricultural export subsidies in the Trans-Pacific Partnership (TPP) region as part of a final deal if other negotiating partners drop their demands for new disciplines for export credits, according to informed sources. 

The new U.S. position on export subsidies represents a concession from its previous position, under which the U.S. was willing to accept a ban on the use of agricultural export subsidies within the TPP region only if there was an escape clause. 

The new position also appears to represent a broader shift for the U.S., which had previously insisted that export subsidies be addressed in a multilateral rather than regional context in order to capture the EU’s subsidies.

That all sounds good for agriculture subsidies (although not so good for export credits), BUT, keep in mind that export subsidies can be tweaked in small ways to turn them into just regular old domestic subsidies.  In this way, governments can keep offering the same money, but in a manner that is permitted under international trade obligations.

So, while I’m happy to hear talk of bringing down agriculture subsidies, I’m not going to get too excited until someone makes an actual proposal to bring down agriculture subsidies.

Chris Edwards

Reading some Frederic Bastiat last night, I circled his observation that the government takes advantage of citizen passivity to increase its power, often by promising to “cure all the ills of mankind.” The government initiates “in the guise of actual services, what are nothing but restrictions; thereafter the nation pays, not for being served, but for being disserved.”

The Wall Street Journal reports that we pay our hard-earned tax dollars for the federal government to spy on us on the highways. Americans might think they are footing the $29 billion annual bill for the Department of Justice to secure our freedoms, but instead the department is abusing those freedoms:

The Justice Department has been building a national database to track in real time the movement of vehicles around the U.S., a secret domestic intelligence-gathering program that scans and stores hundreds of millions of records about motorists, according to current and former officials and government documents.

The database raises new questions about privacy and the scope of government surveillance. The existence of the program and its expansion were described in interviews with current and former government officials, and in documents obtained by the American Civil Liberties Union through a Freedom of Information Act request and reviewed by the Wall Street Journal. It is unclear if any court oversees or approves the intelligence-gathering.

The documents show that the DEA also uses license-plate readers operated by state, local and federal law-enforcement agencies to feed into its own network and create a far-reaching, constantly updating database of electronic eyes scanning traffic on the roads to steer police toward suspects.

“Any database that collects detailed location information about Americans not suspected of crimes raises very serious privacy questions,’’ said Jay Stanley, a senior policy analyst at the ACLU. “It’s unconscionable that technology with such far-reaching potential would be deployed in such secrecy. People might disagree about exactly how we should use such powerful surveillance technologies, but it should be democratically decided, it shouldn’t be done in secret.’’

The disclosure of the DEA’s license-plate reader database comes on the heels of other revelations in recent months about the Justice Department, as well as the agencies it runs, gathering data about innocent Americans as it searches for criminals. In November, the Wall Street Journal reported that the U.S. Marshals Service flies planes carrying devices that mimic cellphone towers in order to scan the identifying information of Americans’ phones as it searches for criminal suspects and fugitives.

Why do government officials try to keep such programs secret? I suspect it’s because they know they are disserving us by undermining our liberties. As for members of Congress, they often do little more than say government spying on us “raises concerns,” but the license plate program is a good opportunity for them to stand up to the executive branch and put a stop to it.

Notes:

The Journal’s report is not an entirely new revelation. In this essay, I mentioned that the Department of Homeland Security also has a license plate spying program.

Walter Olson weighs-in here.

K. William Watson

This morning, U.S. Trade Representative Mike Froman appeared before the Senate Finance Committee to talk and answer questions about U.S. trade policy.  Most of the questions centered around trade promotion authority, the Trans-Pacific Partnership, and how best to further the interests of industries or commodity groups that lobby Senators.  One popular way to phrase a question is to accuse other countries, especially China, of unfairly propping up their own industries and then asking how the administration is going to counteract that.

So it was that Senator Johnny Isakson (R-GA) asked Ambassador Froman about China’s cotton subsidies.

China is basically hoarding … buying cotton and hoarding it, and is stockpiling it.  And they’re subsidizing their producers at twice the world market price.  What can be done with China to enforce through the WTO or through any agreements we might otherwise have to keep them from manipulating the cotton prices and suppressing the cotton market?  

This accusation is kind of funny.  The United States is by far the world’s leading exporter of cotton.  We also subsidize that cotton like crazy.  Admittedly, the U.S. government props up domestic agriculture in slightly more complex and opaque ways than simply hoarding cotton, but if Senator Isakson wants to end distortions of global cotton prices, he could just stop voting for them.

Ambassador Froman’s response:

Well I think this is a very important point more generally, which is that the whole pattern of agricultural subsidies has changed a lot over the last 10 or 15 years.  When the Doha Round started, the focus on agricultural subsidies was really the United States and the European Union.  But in both of those areas, subsidies have come down, while subsidies from China and India in the agriculture area have increased, and by some measure China’s now the largest subsidizer of cotton.  And so we’re engaging with them and we had conversations also in the last couple days about that and about taking a fresh look at where subsidies are being provided, how it’s distorting the market, and how that should play into global trade negotiations.  I think it’s important that we update our view of where subsidies are coming from and what impact it has. 

If you’re a poor subsistence farmer in Africa, it doesn’t matter whether the subsidy’s coming from the U.S. or from China; it matters that the subsidy exists.  And so we’re hoping to engage with China on this and to create some disciplines around this.

These remarks are noteworthy for at least two reasons.  First, the U.S. Trade Representative is admitting that U.S. cotton subsidies harm poor African farmers.  Second, the fact that China is now doing it too provides an incentive to “create some disciplines around this.”

Reciprocal trade liberalization is a strange and wonderful thing.  U.S. cotton subsidies exist because elected officials are willing to burden the U.S. economy as a whole in order to support politically powerful special interests.  That same impulse motivates them to complain about foreign interventions that harm those interests.  Trade agreements harness that political reality to eliminate or reduce both distortions—to the benefit of almost everyone.

U.S. cotton subsidies have so far proven too politically popular for trade negotiations to make any difference.  The United States even paid Brazilian cotton farmers a total of over $700 million to settle a WTO complaint rather than reduce payments to U.S. cotton growers according to existing rules. 

Perhaps China’s growing use of subsidies can change the dynamic, making it finally possible for international negotiations to take on U.S. agriculture subsidies.

Andrew M. Grossman

Challenging an agency’s assessment of scientific research in court is typically seen as a fool’s errand. The courts may keep the regulatory state on a close leash where matters of constitutional law are concerned, and will give challenges regarding the proper interpretation of statutes a fair hearing before (usually) deferring to the government’s view. But an agency has to go seriously off the rails before the courts will second-guess its assessment of the scientific record underlying a regulation.

That’s what makes EPA’s super-expensive Mercury and Air Toxics Standards (MATS) rule so interesting: the agency’s own assessment of the scientific research shows there was no good reason to regulate in the first place. The Supreme Court is now reviewing EPA’s decision to plow ahead regardless, irrespective of the costs of doing so.

The Cato Institute’s amicus brief in Michigan v. EPA unpacks EPA’s own scientific assessment to show that regulation certainly is not (as the statute requires) “appropriate and necessary.” 

Power plants emit trace amounts of mercury, and mercury poses a risk to human neurological development when pregnant women consume fish tainted by it. But, as EPA has explained, mercury deposition in the United States “is generally dominated by sources other than U.S. [power plants].” In fact, the agency’s figures show that those plants are responsible for only about one half of one percent of airborne mercury.

Common sense would therefore suggest that reducing or even eliminating emissions from U.S. plants could have little or no appreciable effect on public health. And EPA actually agrees, finding that “even substantial reductions in U.S. [power-plant] deposition…[are] unlikely to substantially affect total risk.”

To escape that seemingly inescapable conclusion, the agency had to assume the existence of “women of child-bearing age in subsistence fishing populations who consume freshwater fish that they or their family caught” in enormous quantities. And not just any fish, but the most contaminated fish. And even then, placing its thumb on the scale at every step of the way, EPA still struggled to find any real risk, ultimately concluding that mercury from domestic power plants might cause the hypothetical children of these hypothetical women to suffer a hypothetical loss of 0.00209 IQ points apiece—an amount that cannot be meaningfully distinguished from zero.

Why would EPA go through all this trouble to contrive a risk worthy of regulation, while ignoring costs that the agency projects to hit $10 billion per year? The answer is that EPA has long wanted to comprehensively regulate power plants but (due to the cooperative-federalism structure of the Clean Air Act) has been forced to defer to the states on whether and how to address individual sources. Minimizing Section 112’s “appropriate and necessary” requirement allows EPA to circumvent the statutory limitations on its authority and directly achieve its intended goal: imposing new requirements on power plants.

So what seems like a complicated statutory case actually boils down to a familiar story: a federal agency twisting statutory language to aggrandize its own power at the expense of the states’. The Supreme Court can take EPA’s evaluation of the science at face value and still reject this power-grab.

Matthew Feeney

Since the emergence of rideshare companies such as Uber and Lyft there has been a steady stream of commentary and news concerning their safety. When it comes to driver background checks, insurance, privacy, and vehicle inspections some claim that rideshare rides pose a greater threat to passengers than taxi rides.   In my Policy Analysis “Is Ridesharing Safe?” I examine the safety concerns related to ridesharing. While there are legitimate safety concerns, rideshare companies offer insurance coverage that compares favorably to the coverage for many taxis and are oftentimes more strict than taxi companies in regards to driver background checks. In fact, not only do ridesharing companies implement strict background check requirements, they also use features such as two-way rating systems that encourage good behavior on the part of both the passenger and the driver.   From the Paper:    An analysis of the safety regulations governing vehicles for hire does not suggest that ridesharing companies ought to be more strictly regulated. It does highlight, however, that in many parts of the country lawmakers and regulators have not adequately adapted to the rise of ridesharing, which fits awkwardly into existing regulatory frameworks governing taxis.   Read the full Policy Analysis here

Doug Bandow

Saudi Arabia is a medieval system whose horrid human rights practices match its antiquated political system. Official Washington breathed a sigh of relief at the smooth transition after King Abdullah died last week. President Barack Obama is visiting Riyadh to pay his respects.

Secretary of State John Kerry called the departed king a “man of vision and wisdom.” President Barack Obama declared that Abdullah “was always candid and had the courage of his convictions.”

U.S. officials long have celebrated their friendship with the Saudi royals, who sit atop vast oil reserves. Even more important, the American military continues to act as the Saudi royals’ bodyguard.

President George H.W. Bush inaugurated the first Gulf War as much to safeguard Saudi Arabia as liberate Kuwait. He left a garrison in Saudi Arabia later targeted by the 1996 bombing of the Khobar Towers barracks. America’s presence on sacred Saudi soil was one of Osama bin Laden’s grievances.

While American officials are conflicted by the tension between democracy and stability, the Saudis suffer no such indecision. Essentially a totalitarian dictatorship at home, the House of Saud favors whoever and whatever reduces threats to the monarchy abroad.

Saudi Arabia joined the U.S. against the Islamic State. Unfortunately, many of the Sunni insurgents/terrorists likely attended extremist mosques and were educated in radical madrassas funded by Riyadh.

In fact, the House of Saud for years has helped spread radical and violent Islam by subsidizing fundamentalist Wahhabi teachings at home and abroad. Along with Pakistan Riyadh supported Taliban rule in Afghanistan, indirectly aiding al-Qaeda’s Osama bin Laden. Ironically, the Saudi royals, whose ostentatious hypocrisy and lascivious living is evident outside of their country, have been targeted by the forces they helped unleash.

With the onset of the Arab Spring the king opened the regime’s purse strings a bit, sharing a little more of the people’s money with the people. He also introduced several micro-reforms, such as professional education for Shari’a judges. However, the Saudi kingdom remains a system of organized plunder by the royal family.

Indeed, the government imposed new restrictions on dissent. The regime comes near the bottom of any international human rights ranking.

For instance, the State Department’s latest assessment reported that the most important human rights problems included “citizens lack the right and legal means to change their government; pervasive restrictions on universal rights such as freedom of expression, including on the internet, and freedom of assembly, association, movement, and religion; and a lack of equal rights for women, children, and noncitizen workers.”

Saudi Arabia is even more restrictive when it comes to religious liberty. There is none.

A recent example of “moderate” King Abdullah’s reign is last May’s sentencing of blogger Raif Badawi to ten years in prison and 1000 lashes for allegedly insulting Islam. Saudi Arabia is as quick to behead as is the Islamic State.

President Obama lauded King Abdullah’s “steadfast and passionate belief in the importance of the U.S.-Saudi relationship.” Of course. It’s cheaper to borrow U.S. troops than hire bodyguards.

Riyadh’s transition offers Washington an opportunity to relax its embrace of medieval theocracy. Saudi Arabia matters internationally for one reason, oil, and that matters less in a dramatically changing marketplace.

Anyway, a successor regime would continue selling oil. And the West has better answers to reliance on unpleasant suppliers, such as Saudi Arabia: drop manifold barriers to domestic energy production and innovation.

U.S. support for Riyadh may not even encourage stability. The more authoritarian and corrupt the monarchy, the greater the popular resentment. At some point ruthless repression might not be enough.

In an imperfect world America always will have cause to work with dubious partners like the House of Saud. However, the U.S. military’s role is not to safeguard the Saudi monarchy.

As I point out in Forbes online:  “Riyadh is a moral deadweight and an ally in interest, not friend in values. Washington should stop celebrating what is just another ugly pact with a foreign devil.”

Walter Olson

Per documents released in response to FOIA requests from the American Civil Liberties Union, the federal government has built a large database using automatic license-plate readers to enable tracking of vehicles in real time (not just in the course of later investigation) and nationwide (not just near borders), a more extensive program than might have been guessed from earlier piecemeal disclosures. According to this morning’s Wall Street Journal, which breaks the story, the program “collects data about vehicle movements, including time, direction and location, from high-tech cameras placed strategically on major highways.” The resulting photographs are “sometimes” clear enough to identify drivers or passengers. “One email written in 2010 said the primary purpose of the program was asset forfeiture.” Although the program is run by the Justice Department’s Drug Enforcement Administration, its data is increasingly shared for investigations unrelated to drugs.  

Forfeiture-driven law enforcement is at this point deeply embedded in our practice at both federal and local levels, and the small and ambiguous federal-level reforms announced by AG Holder earlier this month are unlikely in themselves to turn that around.

As Conor Friedersdorf comments at the Atlantic, these extraordinary measures have failed to bring us the promised “drug-free America”; indeed, heavy drug use is common even in federal prisons. “The DEA will obviously continue to lose the War on Drugs. We’ve traded our freedom to drive around without being tracked for next to nothing.” An equally pressing question is why a program like this has never been publicly aired or debated more extensively, and might even now remain beyond public scrutiny if not for the ACLU’s persistent FOIA efforts.  Friedersdorf: “Unfortunately, leaders in the U.S. law enforcement community feel that they’re justified in secretly adopting sweeping new methods with huge civil liberties implications.” [adapted from Overlawyered]

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

Over the next couple of days, as the Nor’easter honing in on the New England coast matures and eventually unleashes its winter storm fury, you are going to be subject to a lot of global warming hype.

After all, the climate change alarmist credo is: let no extreme weather event pass without pointing out that it is “consistent with” climate change caused by human industrial society.

The push has already begun.

But this time around, the pushback is also well-prepared.

While the “curator” of the Washington Post’s newly-minted online “Energy and Environment” section Chris Mooney tells us in his article that global warming may make blizzards worse by increasing the temperature of the western Atlantic ocean and thereby increasing the moisture feed into the developing storm, meteorologist Ryan Maue is quick to point out that just the opposite is likely the result—that the elevated sea surface temperatures actually act to make such storms tamer.

Maue goes on to add that it is “easy to make case that global warming weakened this blizzard significantly due to warmer [sea surface temperatures].”

While Ryan is probably being a bit optimistic here, the reality is that this blizzard (in fact pretty much all storm events) are the result of a very complex system of physical interactions—the precise behavior of each one of which is not completely understood, much less perfectly predictable. This makes ascertaining the influence of human-caused climate change virtually (if not entirely) impossible.

Blizzards affecting New York City are perfect examples of this.

A couple years back, during another New York City blizzard, we looked at some of the confounding factors at play in determining how much it snows in Central Park. Our conclusion after reviewing the cases for both more and less snowfall there?

 Which leaves natural variability as the primary driver of just how white New York City’s winters are.

Figure 1 will give you some idea of what we were talking about. It shows the winter snowfall history from New York’s Central Park since the late 1800s.

 

Figure 1. Winter snowfall totals from New York City’s Central Park.

Kudos to you if you can pick out the patterns formed by global warming. And if you can, please write them up for scientific publication somewhere. The world awaits the definitive answer.

In the meantime, don’t belive the hype.

 

 

Nicole Kaeding

The launch of HealthCare.gov in 2013 was a disaster. A new report from the Health and Human Services Inspector General (IG) describes how the department mishandled the website’s construction. The department failed to follow federal contracting rules, and did not have a cohesive plan for the website. This led to cost overruns and project delays, and HealthCare.gov’s eventually rocky start.

The Center for Medicare and Medicaid Services (CMS) was given primary responsibility within HHS for HealthCare.gov launch. For the report, the IG reviewed 60 CMS contracts for the project. These contracts were awarded to 33 different companies.

One problem with these contracts was not designating a single company as the project lead. According to the IG, CMS “missed the opportunity” to designate a “single point-of-contact with responsibility for integrating contractors’ efforts and communicating the common project goal to all 33 companies.” A project of this complexity needs a central command to oversee project development. CMS failed to assign one.  

Another problem was that CMS only sought bids from a small group of previously-used companies. CMS claimed this was to speed along the contracting process, but it left the agency with limited options. For instance, CMS received only four bids for one of the main contracts. Three were determined to be technically insufficient leaving CMS with only one choice, CGI Federal. In other instances, CMS only solicited or received bids from one company.

Additionally, CMS did not consider the previous contractor performance for many bids even though federal contracting rules require it. CMS did not access the main performance management database in the case of CGI Federal, which had had previous missteps with the department.

Compounding the mistakes, CMS selected contract types that put the government, not the contractor, at risk in the case of cost overruns for five of the six main contracts. Taxpayers are paying dearly for CMS’ choice. One contract grew from $58 million to $207 million. The six major contracts for HealthCare.gov grew in costs from $464 million to $824 million.

The IG summarized the findings:

When awarding the Federal Marketplace [HealthCare.gov] contracts, CMS did not meet all requirements and did not leverage all available acquisition planning tools, oversight activities, or contracting approaches to identify and mitigate risks…Because CMS did not leverage all of these tools, it operated without a comprehensive roadmap when awarding the Federal Marketplace contracts.

Construction of HealthCare.gov was a complex technical project. CMS’ mismanagement made the task even more difficult and even more expensive.  

Jason Bedrick

In 2012, New Hampshire launched a bold initiative to advance educational freedom: scholarship tax credits.

The New Hampshire Opportunity Scholarship Act grants business tax credits worth 85 percent of those businesses’ contributions to nonprofit scholarship organizations that fund low- and middle-income students to attend private or home schools. More than 100 students received scholarships in the first year and the results were remarkable.

In a survey of scholarship recipients, nearly 97 percent of families reported being satisfied with their chosen school, including 89.5 percent who were very satisfied. Just a few months into the school year, more than two-thirds reported seeing measurable improvement in their child’s academic achievement. This is especially impressive because the scholarship recipients were among the most disadvantaged in the state. More than nine out of ten scholarship recipients were from families that had a household income low enough to qualify for the federal “free and reduced-price lunch” program, about $43,568 for a family of four.

Yet despite all that, the scholarship tax credit law faced both a repeal effort in the legislature and a bitter lawsuit that went to the state’s highest court. The law survived both—much to the relief of the scholarship recipients—but not without doing great harm. During the period of uncertainty that the repeal effort and lawsuit created, donations to the Network for Educational Opportunity, the state’s sole scholarship organization, fell from about $130,000 to just over $50,000. The reduction in funds meant a significant reduction in the number of scholarship recipients, a drop from 103 to just 40.

In the second year’s scholarship recipient survey, 80 percent reported seeing measurable academic improvement in their child since participating in the scholarship program. It’s a shame that so few students had access to those scholarships. Opponents of the scholarships have vowed to bring another lawsuit and eight legislators are once again sponsoring legislation to repeal the law. The struggle for greater educational freedom continues.

Tonight at 8 p.m. EST, in celebration of National School Choice Week, the Cato Institute will present Live Free and Learn: Scholarship Tax Credits in New Hampshire, a short film detailing the struggle over New Hampshire’s scholarship law and some of the families it has touched. After the film, please join us live online and on Twitter at #CatoConnects for a discussion the politics, policy, and constitutionality of scholarship tax credit laws with former NH state senator Jim Forsythe, Institute for Justice Senior Attorney Dick Komer, and yours truly.

Families participating in New Hampshire’s pioneering scholarship tax credit program report near-universal levels of satisfaction because it enables them to choose the best educational fit for their children. Whatever parents are seeking for their children—improved academic performance, more engaged teachers, social acceptance, freedom from bullying, special needs programming, and so on—they are more likely to find it when they have more than one choice. Policymakers across the country who are seeking to expand the educational choices available in their state should look to New Hampshire as a model—then perhaps students from all states will have the opportunity to live free and learn.

Steve H. Hanke

J.P. Morgan Chase’s CEO Jamie Dimon has it right when he asserts that banks are “under assault.

This has put a damper on the source of 80 percent of the U.S. money supply, broadly measured. The CFS Divisia M4 is growing at an anemic 2.2 percent on a year-over-year basis.

Since the course of nominal national income is determined by the money supply, it’s not surprising that U.S. growth is also anemic. Final Sales to Domestic Purchasers, the best proxy for U.S. aggregate demand, has still not reached its trend rate of growth. In the face of these facts,

I don’t anticipate that the Fed will (or should), “tighten” at its Federal Open Market Committee meetings on January 27–28. Nor do I think the Fed will tighten as soon as most people think. 

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