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Panama Dodges a Bullet

Cato Op-Eds - Tue, 05/06/2014 - 10:34

Juan Carlos Hidalgo

Panamanians voted on Sunday against the efforts of their president, Ricardo Martinelli, to stay in power even though he was constitutionally barred from seeking reelection. It’s not an overstatement to say that in doing so, Panama overcame the greatest challenge in it’s 25 year-old democracy.

For several years Martinelli looked for a way to get rid of the constitutional ban on reelection. He couldn’t do it through a constitutional amendment since the vote of two separate legislatures is required to change the Constitution. And since polls consistently showed that public opinion was firmly against the idea of introducing consecutive presidential reelection, a referendum was also out of the question. Thus, Martinelli tried to pack the Supreme Court with three new justices. The idea was that a friendly Supreme Court would rule that the ban on reelection was unconstitutional (as occurred in the case of Daniel Ortega in Nicaragua). However, Panamanians took to the streets and Martinelli backtracked. Then he opted for a less overt strategy: supporting a successor and appointing his wife as his vice-presidential candidate. As Mary O’Grady of the Wall Street Journal pointed out [$], Martinelli moved his queen to stay in power.

Despite a legal prohibition to do so, Martinelli actively campaigned for his candidate José Domingo Arias and his wife, while viciously attacking their rivals. His government spent millions of dollars in publicity and the president toured the country giving away goodies such as digital TV boxes and inaugurating infrastructure projects (he ordered that the new metro in Panama City not charge a fee until after the election). It is ironic that while Panama has been the most outspoken critic of Venezuela in Latin America, Martinelli’s government engaged in similar electoral tactics as those of Chavismo.

Fortunately, it didn’t work. Juan Carlos Varela, who is Martinelli’s vice-president turned bitter rival, handily defeated Arias by 39.1% versus 31.7%. Panama City’s former mayor, Juan Carlos Navarro, came in third with 27.9%. Even though Martinelli accepted his candidate’s defeat, he didn’t call Varela on Sunday to congratulate him, claiming he had lost his phone number. That doesn’t bode well for a smooth transition. Martinelli is well-known for holding bitter grudges. After splitting with Varela, the National Assembly he controls voted to increase taxes on liquor sales to fund a subsidy for elderly people. As it happens, Varela’s family owns a rum-distillery.

One of the areas where Varela could find a nasty surprise is in public finances. Total government debt (in absolute terms) has increased by 70% during Martinelli’s watch and it wouldn’t be too surprising if the incoming administration finds that the fiscal figures have been doctored to make them look less grave. The Martinelli administration has already engaged in accounting tricks such as postponing payments, relying on turnkey projects to build infrastructure, and taking public enterprises off the books to feign a lower fiscal deficit.

The high levels of government spending have been masked by the fact that the economy grew at an annual average rate of 8% for the last 5 years. While the economy was growing at such a high pace, the fiscal deficit and the public debt (as a percentage of GDP) seemed under control. However, now that the economy is decelerating, the fiscal iceberg is becoming more apparent: the central government deficit was 4.4% of GDP last year. And, after years of declining thanks to high growth rates, total public debt as a percentage of GDP (39% by the end of 2013) is expected to start rising again in 2014.  

Varela will also have to deal with the cronies that Martinelli placed in several key posts such as the Comptroller General, the Attorney General and the head of a recently created tax authority with vast powers. Varela will also face a National Assembly with a majority that belongs to Martinelli’s party.

If Panamanians want to avoid having a president with authoritarian leanings, they should look at amending the Constitution (but not holding a Constituent Assembly as some propose) so the executive doesn’t enjoy so much power in appointing key officials in the government. For example, the next president will be able to appoint four Supreme Court Justices (out of nine), one Electoral Court Justice, and six board members to the Canal Authority (out of eleven), among others. It’s too much power to place in a single person. The constitutional reform should also grant greater independence to the Judiciary.

Panamanians dodged a bullet on Sunday. But their ability to do so in the future depends on restructuring their institutions in order to have a weaker president and a stronger republic.

Categories: Policy Institutes

Balcerowicz’s Polish Big Bang versus Ukraine

Cato Op-Eds - Mon, 05/05/2014 - 17:13

Steve H. Hanke

On May 21, 2014, Leszek Balcerowicz will receive the 2014 Milton Friedman Prize for Advancing Liberty during a dinner at the Waldorf-Astoria Hotel in New York. The prestigious annual award by the Cato Institute carries with it a well-deserved check for $250,000.

For those who might have forgotten the accomplishments of my long-time friend, allow me to suggest that, in Balcerowicz’s case, a picture is literally worth a thousand words.

But, before the picture, a little background.

In 1989, Balcerowicz became Poland’s Deputy Prime Minister and Finance Minister in Eastern Europe’s first non-communist government since World War II. Balcerowicz held these positions from 1989 through 1991, and again from 1997 through 2000. Subsequently, in 2001, he became the Chairman of the National Bank of Poland, a post he held until January 2007.

A student of the “Five P’s”: prior preparation prevents poor performance; Balcerowicz was ready when he first took office in 1989. Indeed, he pulled his comprehensive economic game plan to liberalize and transform the Polish economy out of his desk drawer and proceeded to implement what became known as the “Big Bang”. As they say, the rest is history.

The results of the “Big Bang” speak for themselves in the accompanying chart. Poland’s economy has more than doubled since the fall of the Soviet Union in 1992, growing at an average annual rate of 4.42%.

What about neighboring Ukraine? The contrast with Balcerowicz’s Poland couldn’t be starker. As Oleh Havrylyshyn, the former deputy finance minister of Ukraine, spells out in his classic book – Divergent Paths in Post-Communist Transformation: Capitalism for All or Capitalism for the Few – Ukraine rejected the Big Bang, free-market approach to reform. In consequence, it has taken a road to nowhere, remaining in the shadow of a corrupt communist system.

Unlike Poland’s prosperity, Ukraine has witnessed a post-Soviet contraction in its economy. Yes, the Ukrainian economy has been contracting at a real annual rate of almost 1% since the fall of the Soviet Union. Accordingly, it is smaller today in real terms than it was in 1992.

Many think the International Monetary Fund, which just ponied up $17 billion for Ukraine, will turn things around. Don’t hold your breath. Over the years, the IMF has dispensed its medicine and money in Ukraine with negative results.

When it comes to much-needed liberal economic reforms, one has to do something big; something that captures the public’s imagination and garners wide support. Unfortunately, Ukraine lacks a clear economic game plan – one with wide popular support.

Categories: Policy Institutes

Why We Need Guns

Cato Op-Eds - Mon, 05/05/2014 - 16:52

Stephanie Rugolo

There are plenty of reasons to support the Second Amendment’s guarantee of our right to bear arms, but an expectation of being the victim of society-collapsing chemical warfare shouldn’t be one of them. Wayne LaPierre, CEO and executive vice president of the National Rifle Association, recently said at the organization’s annual meeting:

“We know, in the world that surrounds us, there are terrorists, home invaders, drug cartels, carjackers, “knock-out game”-ers, rapers [sic], haters, campus killers, airport killers, shopping mall killers, and killers who scheme to destroy our country with massive storms of violence against our power grids or vicious waves of chemicals or disease that could collapse the society that sustains us all.”

People tend to overestimate their vulnerability because politicians, reporters, and interested individuals like LaPierre stand to gain from such misperceptions. My colleague John Mueller reported that as recently as late 2011, 75 percent of Americans polled believe that another terrorist attack causing large numbers of American lives to be lost in the near future is somewhat or very likely. The reality is much tamer: outside of war zones, Islamist terrorism claims about 200 to 400 lives each year worldwide. And the United States is less violent now than it has been in years. In the short 35 years between 1973 and 2008, murder dropped by over 40 percent. Rape dropped by 80 percent over the same period.

The mismatch between perceived vulnerability to violence and reality is one of several public misconceptions that the website HumanProgress.org hopes to amend. This is not to say that the right to self defense is superfluous—quite to the contrary, it is fundamental and firearm ownership is an important component of securing that right. That alone is justification for the right to defensive weapons. But there is no need to exaggerate dangers such as probable and imminent threats from terrorists and psychopaths.

Categories: Policy Institutes

What the National Climate Assessment Doesn't Tell You

Cato Op-Eds - Mon, 05/05/2014 - 16:32

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

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

The Obama Administration this week is set to release the latest version of the National Climate Assessment—a report which is supposed to detail the potential impacts that climate change will have on the United States.  The report overly focuses on the supposed negative impacts from climate change while largely dismissing or ignoring the positives from climate change.

The bias in the National Climate Assessment (NCA) towards pessimism (which we have previously detailed here) has implications throughout the federal regulatory process because the NCA is cited (either directly or indirectly) as a primary source for the science of climate change for justifying federal regulation aimed towards mitigating greenhouse gas emissions. Since the NCA gets it wrong, so does everyone else.

A good example of this can be found in how climate change is effecting  the human response during heat waves.  The NCA foresees an increasing frequency and magnitude of heat waves leading to growing numbers of heat-related deaths. The leading science suggests just the opposite.

Case and point. Last week, we had an article published in the peer-reviewed scientific journal Nature Climate Change that showed how the impacts of extreme heat are often overplayed while the impacts of adaptation to the heat are underplayed.  And a new paper has just been published in the journal Environmental Health Perspectives that finds that the risk of dying from heat waves in the U.S. has been on the decline for the past several decades.

By now, this should be rather unsurprising as it has been demonstrated over and over again. Not only in the U.S. but in Europe (and yes, Stockholm) and other major global cities as well. 

The idea that human-caused global warming is going to increase heat-related mortality is simply outdated and wrong. In fact, the opposite is more likely the case—that is, a warming climate will decrease the population’s sensitivity to heat events as it induces adaptation.  We described it this way in our Nature Climate Change piece:

Some portion of this response [the decline in the risk of dying from heat waves] probably reflects the temporal increase in the frequency of extreme-heat events, an increase that elevates public consciousness and spurs adaptive response. In this manner, climate change itself leads to adaptation.

 …Our analysis highlights one of the many often overlooked intricacies of the human response to climate change.

But this information often falls on deaf ears—especially those ears responsible for developing the NCA.

Here is what the Executive Summary of the draft version had to say about heat-related mortality:

Climate change will influence human health in many ways; some existing health threats will intensify, and new health threats will emerge. Some of the key drivers of health impacts include: increasingly frequent and intense extreme heat, which causes heat-related illnesses and deaths and over time, worsens drought and wildfire risks, and intensifies air pollution.

The U.S. Environmental Protection Agency takes the same outlook (of course since it is based heavily on the National Climate Assessment).  The EPA leaned heavily on heat-related mortality as one the “threats” to public health and welfare in its justification for pursuing greenhouse gas emissions restrictions. From the EPA’s Technical Support Document for its greenhouse gas “Endangerment Finding”:

Severe heat waves are projected to intensify in magnitude and duration over the portions of the United States where these events already occur, with potential increases in mortality and morbidity, especially among the elderly, young, and frail. [emphasis in original]

Now compare the Administration’s take with the latest findings on the trend in heat-related mortality across the United States as published by a research team led by Harvard School of Public Health’s Jennifer Bobb.   Bobb and colleagues found that the risk of dying from excessive heat events was declining across the U.S. And further, that most of the overall decline was coming from declines in the sensitivity to extreme heat shown by the elderly population (75 and older).  In fact, the Bobb team found that the risk in the older population has dropped so far that it is now indistinguishable from the risk to the younger populations. Adaptation is a beautiful thing!

From Bobb et al.:

While heat-related mortality risk for the ≥75 age group was greater than for the <65 group at the beginning of the study period, by 2005 they had converged to similar levels.

In other words, all the EPA’s talk about an increasing threat from heat waves and a growing elderly population combining to negatively impact the public health and welfare has been wrong up to now and almost assuredly will be so into the future as we continually look for ways to avoid dying avoidable deaths (e.g., those from heat waves).

Bobb and colleagues summarize this way:

This study provides strong evidence that acute (e.g., same-day) heat-related mortality risk has declined over time in the US, even in more recent years. This evidence complements findings from US studies using earlier data from the 1960s through mid-1990s on community-specific mortality rates (Davis et al. 2003a; Davis et al. 2003b), as well as European studies that found temporal declines in heat-related mortality risk (Carson et al. 2006; Donaldson et al. 2003; Kysely and Plavcova 2011; Schifano et al. 2012), and supports the hypothesis that the population is continually adapting to heat.

As a note, we (Knappenberger and Michaels) were co-authors on the two Davis et al. studies cited in the above paragraph. Our work, first published more than a decade ago, was some of the first research into the declining trends in heat-related mortality across the U.S.

Clearly we have been saying all this stuff for a long time and even more clearly, the federal government hasn’t been listening for a long time. It is not what they want to hear.

References:

Bobb, J.F., R.D. Peng, M.L. Bell, and F. Dominici, 2014. Heat-related mortality and adaptation in the United States, Environmental Health Perspectiveshttp://dx.doi.org/10.1289/ehp.1307392

Davis, R.E., P.C. Knappenbergre, P.J. Michaels, and W.M. Novicoff, 2003a, Changing heat-related mortality in the United States. Environmental Health Perspectives111, 1712–1718.

Davis, R.E., P.C. Knappenbergre, P.J. Michaels, and W.M. Novicoff, 2003b, Decadal changes in summer mortality in U.S. cities. International Journal of Biometeorology, 47, 166–75.

Knappenberger, P.C., P.J. Michaels, and A.W. Watts, 2014. Adaptation to extreme heat in Stockholm County, Sweden. Nature Climate Change, 4, 302-303.

Categories: Policy Institutes

Is Obama Still the Deporter-In-Chief?

Cato Op-Eds - Mon, 05/05/2014 - 12:56

Alex Nowrasteh

This is a difficult question to answer.  As Matt Graham at the Bipartisan Policy Center has pointed out, the rate of internal removals as a percentage of all Immigration and Customs Enforcement (ICE) removals has declined during the Obama Presidency.  But this, in and of itself, doesn’t tell us much about the long run trends of internal enforcement.  We need data from the past that we can compare President Obama’s immigration enforcement record to.  We only have the rate of internal deportations for the last year of the Bush Administration.  Cato has filed a FOIA to find out if the government kept statistics on internal versus border removals prior to 2008 but I’ve heard the data wasn’t kept.

Let’s assume that 63.6 percent of all ICE removals were internal from 2001 to 2007.  I chose 63.6 percent because that was ICE’s internal removal rates in the year 2008 – the first year when that statistic is available.  That means that the number of internal removals under the Bush administration was about 1.25 million.  From 2009-2013, the Obama administration’s has removed just over 1 million from the interior of the United States.  Of course, Bush had three more years to deport unauthorized immigrants.  660,000 people were removed from the interior of the United States during the first five years of the Bush administration.

Source: Department of Homeland Security, BPC, Author’s Calculations.

President Bush removed an average of about 250,000 unauthorized immigrants a year, an average of 160,000 of them annually were interior removals.  President Obama has removed an average of 390,000 unauthorized immigrants a year, an average of 200,000 of them annually were interior removals.

Source: Department of Homeland Security, BPS, Author’s Calculations.

As I’ve written before, the best way to measure the intensity of immigration enforcement is to look at the percentage of the unauthorized immigrant population deported in each year.

Source: Department of Homeland Security, BPC, Pew, Author’s Calculations.

I focus on the internal removal figures as a percentage of the estimated unauthorized immigrant population and assume that the internal removal rate of 63.6 percent prevailed throughout the Bush administration.  If that interior enforcement rate was steady, then the Bush administration deported an average of 1.43 percent of the interior unauthorized immigrant population every year of his presidency.  President Obama’s administration has deported an average of 1.75 percent of the interior unauthorized immigrant population every year of his presidency.  Even when focusing on interior removals, President Obama is still out-deporting President Bush - so far.

The Obama interior removal statistics certainly show a downward trend – especially in 2012 and 2013.  However, the Obama administration has not gutted or radically reduced internal immigration enforcement no matter how you dice the numbers.

Categories: Policy Institutes

Supreme Court Wasn't Serious about the Second Amendment

Cato Op-Eds - Mon, 05/05/2014 - 12:11

Ilya Shapiro

While the media attention will focus on the Supreme Court’s ruling in Town of Greece v. Galloway – the legislative-prayer case – the more interesting (and consequential) decision issued today was the Court’s denial of review in Drake v. Jerejian, the Second Amendment case I previously discussed here. In Drake, the lower federal courts upheld an outrageous New Jersey law that denies the right to bear arms outside the home for self-defense – just like the D.C. law at issue in District of Columbia v. Heller denied the right to keep arms inside the home – and today the Supreme Court let them get away with it.

Drake is but the latest in a series of cases that challenge the most restrictive state laws regarding the right to armed self-defense. Although the Supreme Court in Heller declared that the Second Amendment protects an individual constitutional right, lower federal courts with jurisdiction over states like Maryland and New York have been “willfully confused” about the scope of that right, declining to protect it outside Heller’s particular facts (a complete ban on functional firearms in the home). It’s as if the Supreme Court announced that the First Amendment protects an individual right to blog about politics from your home computer, but then some lower courts allowed states to ban political blogging from your local Starbucks.

Yet each time, the Supreme Court has denied review.

New Jersey’s is perhaps the most egregious restriction. In the Garden State, local law enforcement officials have full discretion to grant or deny a license to carry a firearm, which they “may issue” only if the applicant can prove a “justifiable need” (which in practice means a specific, immediate threat to one’s safety that can’t be avoided in any way other than through possession of a handgun). Then, even if a local police chief approves a carry permit, the application goes to a judge for a hearing, during which the local prosecutor can oppose the permit. And even if the would-be gun-owner can successfully run that gauntlet, she gets a permit for two years, at which point she must repeat the entire process.

The “dual review” by two different branches of goverment is unusually burdensome, to say the least, and distinguishes New Jersey’s approach – in addition to the extreme definition of “justifiable need” – from every other permitting regime in the country. Can you imagine the exercise of any other constitutional right being handled this way?

The effect of this regulatory scheme is that virtually nobody in New Jersey can use a handgun to defend themselves outside their home. The state law inverts how fundamental rights are supposed to work – that the government must justify restrictions, not the right-holder the exercise – and apparently the Supreme Court has no problem with that.

The lower court in Drake applied a deferential review far from the heightened scrutiny normally due an individual right enshrined in the Bill of Rights. It also assumed the legislature’s good faith without requiring the state to show any evidence that a prohibitive-carry regime lowers the rate of gun crime, and excused what constitutional infringements the law causes because legislators acted before Heller clarified that the Second Amendment protected an individual right. To continue my previous analogy, it’s like a state law banning political blogging survived judicial review because the definitive Supreme Court ruling finding an individual right to political blogging didn’t come down till after the state law was enacted.

What kind of a bizarro world are we living in where this is ok?

In Cato’s amicus brief in Drake, we posed an alternate “question presented” (legalese for the issue that a brief asks a court to resolve): 

Was this Court serious in District of Columbia v. Heller when it ruled that the Second Amendment protects the individual right to keep and bear arms?

Today we learn that the answer, unfortunately, is no.

Categories: Policy Institutes

Taiwan Is the Success Story, not China

Cato Op-Eds - Mon, 05/05/2014 - 12:09

Daniel J. Mitchell

Which nation is richer, Belarus or Luxembourg?

If you look at total economic output, you might be tempted to say Belarus. The GDP of Belarus, after all, is almost $72 billion while Luxembourg’s GDP is less than $60 billion.

But that would be a preposterous answer since there are about 9.5 million people in Belarus compared to only about 540,000 folks in Luxembourg.

It should be obvious that what matters is per-capita GDP, and the residents of Luxembourg unambiguously enjoy far higher living standards than their cousins in Belarus.

This seems like an elementary point, but it has to be made because there have been a bunch of misleading stories about China “overtaking” the United States in economic output. Look, for instance, at these excerpts from a Bloomberg report.

China is poised to overtake the U.S. as the world’s biggest economy earlier than expected, possibly as soon as this year… The latest tally adds to the debate on how the world’s top two economic powers are progressing. Projecting growth rates from 2011 onwards suggests China’s size when measured in PPP may surpass the U.S. in 2014.

There are methodological issues with PPP data, some of which are acknowledged in the story, and there’s also the challenge of whether Chinese numbers can be trusted.

But let’s assume these are the right numbers. My response is “so what?”

I’ve previously written that the Chinese tiger is more akin to a paper tiger. But Mark Perry of the American Enterprise Institute put together a chart that is far more compelling than what I wrote. He looks at the per-capita numbers and shows that China is still way behind the United States.

To be blunt, Americans shouldn’t worry about the myth of Chinese economic supremacy.

But that’s not the main point of today’s column.

Instead, I want to call attention to Taiwan. That jurisdiction doesn’t get as much attention as Hong Kong and Singapore, but it’s one of the world’s success stories.

And if you compare Taiwan to China, as I’ve done in this chart, there’s no question which jurisdiction deserves praise.

Yes, China has made big strides in recent decades thanks to reforms to ease the burden of government. But Taiwan is far above the world average while China has only recently reached that level (and only if you believe official Chinese numbers).

So why is there a big difference between China and Taiwan? Well, if you look at Economic Freedom of the World, you’ll see that Taiwan ranks among the top-20 nations while China ranks only 123 out of 152 countries.

By the way, Taiwan has a relatively modest burden of government spending. The public sector only consumes about 21.5 percent of economic output. That’s very good compared to other advanced nations.

Moreover, Taiwan is one of the nations that enjoyed considerable progress by adhering to Mitchell’s Golden Rule. Between 2001 and 2006, total government spending didn’t grow at all.

During this period of fiscal restraint, you won’t be surprised to learn that the burden of government spending fell as a share of GDP.

And it should go without saying (but I’ll say it anyhow) that because politicians addressed the underlying disease of government spending, that also enabled big progress is dealing with the symptom of government borrowing.

Look at what happened to spending and deficits between 2001 and 2006.

P.S. You probably didn’t realize that it was possible to see dark humor in communist oppression.

P.P.S. But at least some communists in China seem to understand that the welfare state is a very bad idea.

P.P.P.S. Some business leaders say China is now more business-friendly than the United States. That’s probably not good news for America, but my goal is to have a market-friendly nation, not a business-friendly nation.

Categories: Policy Institutes

Guest Worker Visas Can Halt Illegal Immigration

Cato Op-Eds - Mon, 05/05/2014 - 10:35

Alex Nowrasteh

There is a trade off between the number of lower skilled guest worker visas and the number of unauthorized immigrants.  More lower skilled guest workers means fewer unauthorized immigrants.  Fewer guest workers mean more unauthorized immigrants.  We just have to look back to the Bracero program to see this relationship.   

The number of removals and returns is an approximation of the stock of the unauthorized immigrant population and flows.  Many, but not all, of those removed or returned during this time period were funneled into guest worker visas.  Beginning with the adoption of the Bracero program and the H2 visa in the early 1950s, there was a flurry of removals and returns whereby many migrants were funneled into the guest worker visa programs.  After that, my thesis is that the large numbers of work visas decreased the number of apprehensions by shrinking the pool of unauthorized immigrants and channeling future ones into the legal system.  After Bracero was ended in the mid-1960s, the number of removals and returns began a steady increase along with an increase in the stock and flow of unauthorized immigrants deprived of their previous lawful means of entry and work.

Ending the lower skilled guest worker visa programs preceded the modern increase in unauthorized immigration. 

Source: Department of Homeland Security and Immigration and Naturalization Service annual reports.

The more low skilled guest workers there are, the fewer unauthorized immigrants there are to deport. 

One legal worker on a visa seems to be worth more than one unauthorized immigrant worker – meaning a pretty favorable trade off in numbers for those concerned about the numbers of immigrants.  In 1954, 1 guest worker visa replaced 3.4 unauthorized immigrants, meaning that one legal worker seemed to be equal to more than three illegal workers.  If an important goal of a lower skilled guest worker visa is to eliminate the American economic demand for unauthorized immigrants, relatively few guest worker visas can replace a much larger unauthorized immigrant population.

Increases in Border Patrol and border enforcement are also unnecessary to get this result.  By allowing unauthorized immigrants to get the work visas, by not punishing them or employers for coming forward, and by making work visas available to those who want to enter, almost all future and current unauthorized immigrants can be funneled into the legal market without a large increase in enforcement.  This was the policy followed in the 1950s and it appears to have worked:   

Sources: Department of Homeland Security and Immigration and Naturalization Service annual reports.

This chart zooms in on the 1942 through 1965 time period when the Bracero guest worker visa was in effect:

Sources: Department of Homeland Security and Immigration and Naturalization Service annual reports.

This is not to say that Bracero was a perfect program and that it should be replicated today.  There were a lot of problems with it, namely that migrants were constrained in changing employers, migrants were limited to working only in agriculture, and the work visa was annual – all issues that should be fixed in any new lower skilled guest worker visa adopted.  A lower skilled guest worker visa is indispensable to vastly reduce or even halt unauthorized immigration. 

Categories: Policy Institutes

Let Export-Import Bank and Corporate Welfare Die

Cato Op-Eds - Mon, 05/05/2014 - 09:55

Doug Bandow

Nothing brings out the well-tailored lobbyists in Washington quite like a threat to corporate welfare.  With the Export-Import Bank’s legal authorization set to run out this year, the Chamber of Commerce recently led a Big Business march on Capitol Hill to protect what is known as Boeing’s Bank. 

Over the last eight decades ExIm has provided over a half trillion dollars in credit, mostly to corporate titans.  Congress should close the Bank.

The agency was created in 1934 to underwrite trade with the Soviet Union.  Unfortunately, ExIm is not free, as claimed.  Recently made self-financing, the agency has returned $1.6 billion to the Treasury since 2008. 

However, economists Jason Delisle and Christopher Papagianis warned that the Bank’s “profits are almost surely an accounting illusion” because “the government’s official accounting rules effectively force budget analysts to understate the cost of loan programs like those managed by the Ex-Im Bank.”  In particular, the price of market risk is not included.  Delisle and Papagianis figured ExIm’s real price to exceed $200 million annually.   

Economist John H. Boyd took another approach, explaining:  “For an economic profit—that is, a real benefit to taxpayers—ExIm bank’s income must exceed its recorded expenses plus its owners’ opportunity cost, a payment to taxpayers for investing their funds in this agency rather than somewhere else.”  He figured the Bank’s real cost at between $521 million and $653 million in 1980.  The corresponding expense today likely is much higher.

The Bank claims to create jobs.  No doubt, ExIm financing makes some deals work.  But others die because ExIm diverts credit from firms without agency backing.

Economists Heywood Fleisig and Catharine Hill figured that channeling resources to exports reduces “domestic investment, consumption, or government expenditure.”  Thus, they explained, while export subsidies will increase employment in export firms, they will do so “at the expense of employment elsewhere.”

ExIm also sells itself as necessary to promote trade.  But exports should not an end in themselves irrespective of cost.  Anyway, the Bank supports only about two percent worth of exports, barely a blip in a $17 trillion economy. 

The Bank contends that it corrects market failures when U.S. exporters can’t get credit. However, international financial markets are sophisticated.

Moreover, it’s impossible to know just how many of the deals currently financed by American taxpayers wouldn’t go through absent the subsidy.  Everyone—borrower, banker, exporter, bureaucrat—has an incentive to claim ExIm played a vital role.

The agency says it supports all businesses, including small ones.  However, candidate Barack Obama was right in 2008 when he described the Bank as “little more than a fund for corporate welfare.” 

The most money always goes to Big Business.  Boeing alone typically accounts for more than 40 percent of the Bank’s credit activities.  Veronique De Rugy of the Mercatus Center figured that the top ten recipients collect 75 percent of ExIm’s benefits.

Finally, ExIm’s warns that if the U.S. government doesn’t provide cheap credit, American companies will lose out to foreign firms subsidized by their governments.  In this way the Bank claims “to help level the playing field.”

However, less than half of ExIm credit is even directed in this way, let alone proven necessary.  Moreover, as I point out in my new Forbes online column:  “The fact that other governments are willing to hurt their peoples by channeling credit away from worthier firms in the marketplace in favor of politically well-connected exporters is no reason for America to do the same.”

A better way to help promote trade would be to strengthen the economy generally.  Lower and rationalize business taxes.  Cut and streamline regulation.  Reduce tariffs, especially on widely used imports, such as steel.  Discourage frivolous litigation.  Stop subsidizing the defense of prosperous, populous trade competitors.

It’s time to kill the agency.  Let exporters pay to generate their own profits.

Categories: Policy Institutes

More Spending without New Taxes?

Cato Op-Eds - Fri, 05/02/2014 - 17:38

Jeffrey Miron

Wellesley, Mass., the town I live in, sent residents this message earlier today:

In April 2014, the Wellesley Annual Town Meeting approved … the acquisition of property at 494 Washington Street…  A few citizens, determined to derail the acquisition, obtained sufficient signatures to put a referendum on the ballot requiring voters to confirm the Town Meeting vote.

A YES vote on Question 1 … confirms the action taken by Town Meeting…  

There is NO tax increase associated with this vote; the acquisition will be financed using short-term debt under the levy.

Sentences like that last one are enough to make an economist’s head explode. Why? Because more debt-financed expenditure now means higher taxes later. It’s that simple. So the Town’s claim is spin, not truth.  

Categories: Policy Institutes

A Decent but Underwhelming Jobs Report

Cato Op-Eds - Fri, 05/02/2014 - 10:48

Daniel J. Mitchell

The headlines from today’s employment report certainly seem positive.

The unemployment rate has dropped to 6.3 percent and there are about 280,000 new jobs.*

But if you dig into the details of the latest numbers from the Bureau of Labor Statistics, you find some less-than-exciting data.

First, here is the chart showing total employment over the past 10 years.

This shows a positive trend, and it is good that the number of jobs is climbing rather than falling.

But it’s disappointing that we still haven’t passed where we were in 2008.

Indeed, the current recovery is miserable and lags way behind the average of previous recoveries.

But the really disappointing news can be found by examining the data on how many working-age people are productively employed.

The Bureau of Labor Statistics has two different data sets that measure the number of people working as a share of the population.

Here are the numbers on the labor force participation rate.

As you can see, we fell down a hill back in 2008 and there’s been no recovery.

The same is true for the employment-population ratio, which is the data I prefer for boring, technical reasons.

Though I should acknowledge that the employment-population ratio does show a modest uptick, so perhaps there is a glimmer of good news over the past few years.

But it’s still very disappointing that this number hasn’t bounced back since our economic output is a function of how much labor and capital are productively utilized.

In other words, the official unemployment rate could drop to 4 percent and the economy would be dismal if that number improved for the wrong reason.

* Perhaps the semi-decent numbers from last month are tied to the fact that Congress finally stopped extending subsidies paid to people for staying unemployed?

Categories: Policy Institutes

Hot Off the Press: May 2014 "Cato Trade" Newsletter

Cato Op-Eds - Thu, 05/01/2014 - 14:43

Daniel J. Ikenson

If you don’t get inboxed with Cato Trade, the monthly newsletter of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, you can find the current installment here.  In this month’s release, you can learn about Cato Trade on Campus; read about our efforts to dispel pervasive myths about trade; get the details of our upcoming half-day conference on the increasingly controversial investor-state dispute settlement rules; see what we’ve been thinking and writing about, and; get a sense of what may be in the pipeline.

Here are links to the current and previous releases:

Here is more information about Cato’s trade scholars and our areas of focus:

If you’d like to receive our newsletter at the beginning of every month, please send your name and email to Inu Barbee at ibarbee [at] cato [dot] org.

Categories: Policy Institutes

DoD’s Misaligned Incentives

Cato Op-Eds - Thu, 05/01/2014 - 11:39

Nicole Kaeding

The Department of Defense procurement problems are extensive. Last week, my colleague Chris Edwards discussed a failed DoD attempt to replace the president’s helicopter fleet. The project was canceled after several years due to large cost overruns and schedule delays, which ended up wasting $3.2 billion.

Now, a new report by the Government Accountability Office (GAO) provides further insights into the DoD’s troubled procurement processes. GAO tracked the progress of eighty major weapons systems, which have total projected costs of $1.5 trillion. Combined, all these projects have gone over budget by a huge $448 billion. Furthermore, forty-two percent of them had cost overruns greater than 25 percent.

Many of them are also well behind schedule. GAO estimates that the average project is twenty-eight months behind schedule, up from twenty-three months in fiscal year 2011.

The GAO report does highlight some small improvements with DoD’s handling of the projects, albeit with a caveat: “the enormity of the investment in acquisitions of weapon systems and its role in making U.S. fighting forces capable, warrant continued attention and reform.”

Aside from huge cost overruns, the GAO also details numerous other problems within the DoD procurement process. For one thing, DoD officials face incentives that are often misaligned with taxpayer interests. Some of these incentives call for DoD officials’ close relationships with contractors, and constant demands by senior officials and policymakers for new and better technology.

The “funding dynamics” within the DoD is another problem. The agency’s officials, unlike their counterparts in private industries, are functionally rewarded for over-budget projects according to the report:

There are several characteristics about the way programs are funded that create incentives in decision-making that can run counter to sound acquisition practices… In DoD, there can be few consequences if funds are not used efficiently. For example, as has often been the case in the past, agency budgets generally do not fluctuate much year to year and, programs that experience problems tend to eventually receive more funding to get well. Also, in DoD, new products in the form of budget line items can represent revenue. An agency may be able to justify a larger budget if it can win approval for more programs. Thus, weapon system programs can be viewed both as expenditures and revenue generators.

Once weapon system procurements get underway, it is very unlikely that they will be canceled before completion. So for projects that turn into white elephants, Congress and Defense officials tend to throw good money after bad.

The GAO also notes that, unfortunately for taxpayers, these issues are not new: “while some progress has been made, too often GAO reports on the same kinds of problems with acquisition programs today that it did over 20 years ago.” In testimony before Congress yesterday, Frank Kendall, the under secretary of defense for acquisitions, said, “I’ve seen any number of attempts to improve defense acquisition. My view is many of the things we have tried have had little discernible impact.”

Major procurement reforms are clearly needed at the Defense Department. But until that happens, misaligned incentives within Congress and the DoD will continue to waste billions of taxpayer dollars.

Categories: Policy Institutes

Cost-Benefit Analysis in Nurse Practitioner Regulation

Cato Op-Eds - Wed, 04/30/2014 - 16:21

Peter Van Doren

Yesterday, the New York Times ran an op-ed by Sandeep Jauhar questioning the New York state legislature’s passage of a bill allowing more independence for nurse practitioners. The author, a doctor himself, claims that allowing nurse practitioners to work independently would not save money and would result in lower quality care. In his opinion, the answer to the question of too few primary care doctors is not to allow competition from those with less education, but to raise their pay.

My forthcoming Working Papers column in the Summer issue of Regulation will describe a paper by occupational licensing expert Morris Kleiner et al. that disputes these claims. In his September 2013 paper, Kleiner et al. find that in states that allow nurse practitioners to independently practice and write prescriptions, the fees charged for services are lower while health care quality, as measured by changes in the infant mortality rate and malpractice insurance premiums, is not affected.

For more of coverage of Kleiner’s work, see here and here.

Categories: Policy Institutes

The Politics of Personal Destruction—Campaign Finance Version

Cato Op-Eds - Wed, 04/30/2014 - 13:26

Roger Pilon

The Washington Post’s Radley Balko had a great tweet this morning—“Rich progressives hold secret meeting to discuss how we can ban rich conservatives from holding secret meetings.” He linked to a long morning POLITICO piece by Kenneth P. Vogel, “Big donor secrecy: ‘Irony, but it’s not hypocrisy,’” about a gathering in Chicago this week of major Democratic Party donors that’s raised more than $30 million for liberal groups—a meeting that included a bit of strong-arming to keep unwanted reporters at bay, Vogel reports.

Secrecy aside, one of the issues I found most interesting among the many interesting things in Vogel’s piece was his discussion about what motivates big political donors—and the different perceptions liberals and conservatives have about that question. Both sides argue, he writes, that “their donations are animated by a desire to right a country headed down the wrong path.” But,

The liberal strain of the argument is usually sprinkled with a heaping helping of moral superiority. Their most generous backers are giving to candidates and causes that could hurt their bottom line by raising taxes on the denizens of their elite tax bracket, the argument goes, whereas conservative big donors are seeking to pad their pockets by trying to slash taxes and regulations that impinge on their business.

“The people who are giving money into politics here are interested in changing the system. They’re not interested in getting return on investment,” said former Stride Ride president Arnold Hiatt, who donated $1.9 million to Democratic super PACs in 2012, not including gifts to nonprofits that aren’t required to disclose their donors. “You can focus on the irony, but it’s not hypocrisy because we’re not trying to get something for our donations.”

There you have it: white hats and black, and we know which side’s hats are black. It will surprise no one that the Koch brothers played a prominent role in the moral narrative that surrounded this gathering. What is hard to believe, however, is that these Democratic donors believe their own rhetoric. Yet they’re asking the rest of us to believe that the Kochs and the Sheldon Adelsons and the rest of the conservative and libertarian big-money donors are in it for the money.

The argument doesn’t pass the straight-face test, but of course it’s part of the class-warfare tack that Progressives took when they first teamed up with Populists at the end of the 19th century. It’s not enough to rebut your political opponent’s arguments. You’ve got to vilify him as well—what has come to be called the politics of personal destruction—and that’s especially important when you can’t rebut his arguments. In no area of our public life today do we find this politics practiced more zealously than campaign finance.

Fortunately, Vogel gives us a few facts that undermine the morality play unfolding this week in Chicago:

Of course, there are some examples where liberal donors’ causes overlap with their economic interests. San Francisco hedge fund billionaire Tom Steyer, whose aides delivered a Tuesday morning presentation to [Democracy Alliance] donors on his plan to spend $100 million in the 2014 midterms boosting environmentally minded candidates, has invested in renewable energy initiatives that could be boosted by his advocacy. And DA partners Amber and Steve Mostyn, who declined an interview request in Chicago, have spent heavily against advocates of tort reforms in Texas that could crimp their legal business.

Meanwhile, there are plenty of examples of top conservative donors whose giving is animated by causes unrelated to their bottom lines. While Adelson would undoubtedly benefit from GOP tax policies, he donates mostly on the basis of a single issue—the defense of Israel—that is detached from the casino empire that built his $40 billion fortune. And the Kochs often cite their opposition to ethanol subsidies that benefit their sprawling industrial empire as an example of a political stance that could hurt their bottom line.

So do the liberal donors gathered in Chicago this week really believe their own rhetoric? Of course not. If we’re talking about morality, then, let’s do so. Repairing to the title of Vogel’s piece, it’s not irony; it’s hypocrisy. Let’s put the black hats on the proper heads.

 

Categories: Policy Institutes

Colorado Isn't Having a Cultural Revolution

Cato Op-Eds - Wed, 04/30/2014 - 11:11

Jason Kuznicki

In news that will surprise exactly no one, music and cannabis can be pretty nice together:

The cultural revolution that is making marijuana part of everyday Colorado life conquers another established front Tuesday as the Colorado Symphony Orchestra announces a series of performances sponsored by the cannabis industry.

The concerts, organized by pro-pot promoter Edible Events, will start May 23 with three bring-your-own marijuana events at the Space Gallery in Denver’s Santa Fe arts district and culminate with a large, outdoor performance at Red Rocks Amphitheatre on Sept. 13. The events are being billed as fundraisers for the CSO, which will curate a themed program of classical music for each show.

But that’s hardly a cultural revolution: The earliest written mention of marijuana was by the ancient Greek historian Herodotus, who described its users dancing and singing. The rest, as they say, is history.

What’s revolutionary here is the law, which has finally begun treating Coloradans like responsible adults rather than criminals. At least about cannabis: Our laws ought to do the same for all illegal drugs. Doing so will encourage responsible drug use, better scientific research, and better treatment for addicts.

Yes, legal cannabis means we will have to make a few adjustments. But many of them aren’t so bad: “Are drivers sober?” is not a new question, after all. Only now, it’s a question to be answered a little more honestly, and with better treatment from the law. On the whole, that’s clearly for the best.

Categories: Policy Institutes

New Frontiers in Regulatory Overreach

Cato Op-Eds - Wed, 04/30/2014 - 10:19

Simon Lester

In most cases, excessive regulation doesn’t surprise me all that much.  It usually focuses on familiar industries, such as automobiles.  So, for example, when the National Highway Traffic Safety Administration came up with a rule mandating that all cars and light trucks sold in the United States have rearview cameras, it wasn’t a great shock.

But every now and then, regulators do something that catches me off guard.  This is from the Economist:

Vancouver’s ban on doorknobs in all new buildings, which went into effect last month, … has provoked a strong reaction from the door-opening public and set off a chain reaction across the country as other jurisdictions ponder whether to follow Vancouver’s lead. 

Wait, what?? They are banning doorknobs? I confess that this threw me when I first read it. Were they going to require some sort of Star Trek-like eyeball scanning device, along with an automatic door?

Turns out it wasn’t anything quite so techonoligcally advanced. They just want “levered doorhandles” instead. Here’s their rationale:

The war on doorknobs is part of a broader campaign to make buildings more accessible to the elderly and disabled, many of whom find levered doorhandles easier to operate than fiddly knobs. Vancouver’s code adds private homes to rules already in place in most of Canada for large buildings, stipulating wider entry doors, lower thresholds and lever-operated taps in bathrooms and kitchens.

I would have thought doorknobs were pretty easy to deal with, but OK, maybe levers are easier. But I’m not sure how you go from “some people find levers easier” to “everyone must use levers!”

Furthermore, perhaps levers are too easy:

True, elderly and disabled people find it easier to operate doors with handles. But so do bears. In British Columbia, bears have been known to scavenge for food inside cars—whose doors have handles, knob advocates point out. Pitkin County, Colorado, in the United States, has banned door levers on buildings for this very reason. One newspaper columnist in the pro-knob camp has noted that the velociraptors in “Jurassic Park” were able to open doors by their handles.

Obviously, bears don’t vote (nor do velociraptors), so we probably can’t attribute these developments to regulatory capture by the bear lobby, which wants easier access to people food (are campers getting more careful with their “pic-a-nic” baskets these days?). Nevertheless, something seems a little off in the regulatory process in Vancouver.

Categories: Policy Institutes

Adaptation to Extreme Heat

Cato Op-Eds - Wed, 04/30/2014 - 09:54

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

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

Last fall, the press pounced on the results of a new study that found that global climate change was leading to an increasing frequency of heat waves and thus resulting in greater heat-related mortality. Finally a scientific study showing that global warming is killing us after all! See all you climate change optimists have been wrong all along, human-caused global warming is a threat to our health and welfare.

Not so fast.

Upon closer inspection, it turns out that the authors of that study—which examined heat-related mortality in Stockholm, Sweden—failed to include the impacts of adaptation in their analysis as well as the possibility that some of the temperature rise which has taken place in Stockholm is not from “global” climate change but rather local and regional processes not at all related to human greenhouse gas emissions.

What the researchers Daniel Oustin Åström and his colleagues left out of their original analysis, we (Chip Knappenberger, Pat Michaels, and Anthony Watts) factored in. And when we did so, we arrived at the distinct possibility that global warming actually led to a reduction in the rate of heat-related mortality in Stockholm.

Our findings have just been published in the scientific journal Nature Climate Change as a Comment on the original Oustin Åström paper (which was published in the same journal).

We were immediately skeptical because the original Oustin Åström results run contrary to a solid body of scientific evidence (including our own) that shows that heat-related mortality and the population’s sensitivity to heat waves was been declining in major cities across America and Europe as people take adaptive measures to protect themselves from the rising heat.

Contrarily, Oudin Åström reported that as a result of an increase in the number of heat waves occurring in Stockholm, more people died from extreme heat during the latter portion of the 20th century than would have had the climate of Stockholm been similar to what it was in the early part of the 20th century—a time during which fewer heat waves were recorded. The implication was that global warming from increasing human greenhouse gas emissions was killing people from increased heat.

But the variability in the climate of Stockholm is a product of much more than human greenhouse gas emissions. Variations in the natural patterns of regional-scale atmospheric circulation, such as the Atlantic Multidecadal Oscillation (AMO), as well as local impacts associated with urbanization and environmental changes in the direct vicinity of the thermometer are reflected in the city’s temperature history, and the original Oudin Åström et al. publication did not take this into account. This effect is potentially significant as Stockholm is one of Europe’s fastest growing cities.

But regardless of the cause, rising temperatures spur adaptation. Expanded use of air conditioning, biophysical changes, behavior modification, and community awareness programs are all examples of actions which take place to make us better protected from the dangers associated with heat waves. Additionally, better medical practices, building practices, etc. have further reduced heat-related stress and mortality over the years.

The net result is that as result of the combination of all the adaptive measures that have taken place over the course of the 20th century in Stockholm, on average people currently die in heat waves at a rate four times less than they did during the beginning of the 20th century. The effect of adaptation overwhelms the effect of an increase in the number of heat waves.

In fact, it is not a stretch to say that much of the adaptation has likely occurred because of an increased frequency of heat waves. As heat waves become more common, the better adapted to them the population becomes.

Our analysis highlights one of the often overlooked intricacies of the human response to climate change—the fact that the response to climate change can actually improve public health and welfare.

Which, by the way, is a completely different view than the one taken by the current Administration.

References:

Knappenberger, P., Michaels, P., and A. Watts, 2014. Adaptation to extreme heat in Stockholm County, Sweden. Nature Climate Change, 4, 302-303.

Oudin Åström, D., Forsberg, B., Ebi, K. L. & Rocklöv, J., 2013. Attributing mortality from extreme temperatures to climate change in Stockholm, Sweden. Nature Climate Change, 3, 1050–1054.

Categories: Policy Institutes

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