Uncle Sam is essentially broke. But the federal government keeps spending. The House is voting this week on a measure already adopted by the U.S. Senate to suspend money-saving reforms adopted less than two years ago.
In 1968 Congress created the National Flood Insurance Program, shifting the cost of disasters from people who chose to live in flood-prone areas to taxpayers who don’t. Over time Congress kept cutting premiums. By 1982 two-thirds of participants received a subsidy.
NFIP turned into foolishness squared. The first cost is financial: the federal government keeps insurance premiums low for people who choose to build where they otherwise wouldn’t. The Congressional Research Service figured that the government charges about one-third of the market rate for flood insurance. The second cost is environmental: Washington essentially pays participants to build on environmentally-fragile lands that tend to flood.
Uncle Sam also has a propensity to spend billions more to rebuild public buildings and infrastructure in flood zones.
Although not every NFIP beneficiary is wealthy, CRS noted: “Some critics point out that the costs—financial risk and ecological damage—are widely distributed to taxpayers across the country and the benefits, by contrast are disproportionately enjoyed by wealthy counties and by owners of vacation homes.”
NFIP’s overall liability is $1.3 trillion. Today total program debt is about $25 billion. Economists Judith Kildow and Jason Scorse warned that “the flood insurance program is a fiscal time bomb for the government.”
So disastrous were the program’s finances that even Congress felt the need to act. In July 2012 legislators approved the Biggert-Waters Flood Insurance Reform Act in an attempt to make the NFIP more accurate, efficient, and solvent. For different properties rates were increased and subsidies were cut. Overall, the legislation was expected to save about $25 billion.
The amendment worked—too well. Insurance bills began increasing. People used to living well at taxpayer expense complained to their legislators. Interest groups which profit from property sales also raced to Capitol Hill,
So now reform co-sponsor Rep. Maxine Waters (D-Ca.) is pushing to delay the reforms until 2018. Of course, in 2018 no one will be more willing to pay higher premiums, and undoubtedly will again lobby for further relief from Congress.
Explained Waters: “Never in our wildest dreams did we think the premium increases would be what they appear to be today.” Her new legislation, backed by a mix of Republicans and Democrats, would bar increases in premiums and reductions in subsidies for some properties, restore earlier subsidies for others, and mandate an “affordability study.”
Said Waters: “neither Democrats nor Republican envisioned it would reap the kind of harm and heartache that may result from this law.” She was echoed by Nicholas Pinter, a professor at Southern Illinois University, who advocated reforms but also “compassion for Americans living on flood-prone lands.”
Actually, those people need to be held responsible for their actions. Compassion should be accorded taxpayers, who have suffered for decades. Mississippi Commissioner of Insurance Mike Chaney said the NFIP should not make up its shortfall from homeowners who “simply followed the rules.” But if not them, who? After all, they received the benefits of the subsidized insurance.
At the end of January, the Senate voted to effectively kill the 2012 reform. That would “return the program to a state of insolvency,” Shai Akabas of the Bipartisan Policy Center told the New York Times.
The Republican House leadership has approved a vote on a companion measure. Even the White House criticized Congress’ potential U-turn.
In fact, the 2012 measure didn’t go far enough. Congress should eliminate federally-subsidized flood insurance—entirely. There is no justification for turning Uncle Sam into a back-stop for wealthy vacationers and other privileged recipients of federal largesse.
Like Uncle Sam, NFIP is broke. It should be killed, not reformed. Legislators should start exhibiting compassion for American taxpayers.
Daniel J. Mitchell
There’s an ongoing debate about Keynesian economics, stimulus spending, and various versions of fiscal austerity, and regular readers know I do everything possible to explain that you can promote added prosperity by reducing the burden of government spending.
Simply stated, we get more jobs, output, and growth when resources are allocated by competitive markets. But when resources are allocated by political forces, cronyism and pork cause inefficiency and waste.
Paul Krugman has a different perspective on these issues, which is hardly a revelation. But I am surprised that he often times doesn’t get the numbers quite right when he delves into specific case studies.
He claimed that spending cuts caused an Estonian economic downturn in 2008, but the government’s budget actually skyrocketed by 18 percent that year.
He complained about a “government pullback” in the United Kingdom even though the data show that government spending was climbing faster than inflation.
He even claimed that Hollande’s election in France was a revolt against austerity, notwithstanding the fact that the burden of government spending rose during the Sarkozy years.
My colleague Alan Reynolds pointed out that Krugman mischaracterized the supposed austerity in the PIIGS nations such as Portugal, Ireland, Italy, Greece, and Spain.
We have another example to add to the list.
He now wants us to believe that Germany has been a good Keynesian nation.
Here’s some of what Professor Krugman wrote for the New York Times.
I hear people trying to dismiss the overwhelming evidence for large economic damage from fiscal austerity by pointing to Germany: “You say that austerity hurts growth, but the Germans have done a lot of austerity and they’re booming.” Public service announcement: Never, ever make claims about a country’s economic policies (or actually anything about economics) on the basis of what you think you’ve heard people say. Yes, you often hear people talking about austerity, and the Germans are big on praising and demanding austerity. But have they actually imposed a lot of it on themselves? Not so much.
In some sense, I agree with Krugman. I don’t think the Germans have imposed much austerity.
But here’s the problem with his article. We know from the examples above that he’s complained about supposed austerity in places such as the United Kingdom and France, so one would think that the German government must have been more profligate with the public purse.
After all, Krugman wrote they haven’t “imposed a lot of [austerity] on themselves.”
So I followed the advice in Krugman’s “public service announcement.” I didn’t just repeat what people have said. I dug into the data to see what happened to government spending in various nations.
And I know you’ll be shocked to see that Krugman was wrong. The Germans have been more frugal (at least in the sense of increasing spending at the slowest rate) than nations that supposedly are guilty of “spending cuts.”
To ensure that I’m not guilty of cherry-picking the data, I look at three different base years. But it doesn’t matter whether we start before, during, or after the recession. Germany increased spending at the slowest rate.
Moreover, if you look at the IMF data, you’ll see that the Germans also were more frugal than the Swedes, the Belgium, the Dutch, and the Austrians.
So I’m not sure what Krugman is trying to tell us with his chart.
By the way, spending in Switzerland grew at roughly the same rate as it did in Germany. So if Professor Krugman is highlighting Germany as a role model, maybe we can take that as an indirect endorsement of Switzerland’s very good spending cap?
But I won’t hold my breath waiting for that endorsement to become official. After all, Switzerland has reduced the burden of government spending thanks to the spending cap.
Not exactly in line with Krugman’s ideological agenda.
P.S. This isn’t the first time I’ve had to deal with folks who mischaracterize German fiscal policy. When Professor Epstein and I debated a couple of Keynesians in NYC as part of the Intelligence Squared debate, one of our opponents asserted that Germany was a case study for Keynesian stimulus. But when I looked at the data, it turned out that he was prevaricating.
P.P.S. This post, I hasten to add, is not an endorsement of German fiscal policy. As I explained while correcting a mistake in the Washington Post, the burden of government is far too large in Germany. The only good thing I can say is that it hasn’t grown that rapidly in recent years.
P.P.P.S. Let’s close with a look at another example of Krugman’s misleading work. He recently implied that an economist from the Heritage Foundation was being dishonest in some austerity testimony, but I dug into the numbers and discovered that, “critics of Heritage are relying largely on speculative data about what politicians might (or might not) do in the future to imply that the Heritage economist was wrong in his presentation of what’s actually happened over the past six years”
Very good, front page story in yesterday’s Washington Post entitled, “Marijuana’s Moment?”
The highlight is a quote from former drug czar, General Barry McCaffrey: “The momentum to treat marijuana as a legal drug is irreversible.” Wow. The last time I was on a panel with him was about two years ago and it was quite evident then that the tide was turning, but I expected him to keep fighting. According to the Post story, the former drug czar no longer accepts invitations to appear on television. That will save me some time fact-checking him.
Here’s another excerpt from the Post story:
America has been at the edge of marijuana legalization several times during the past half-century, but never as close to mass acceptance of the drug as the nation is today.
Since the 1960s, the United States has traveled on a herky-jerky trip from hippies and head shops to grass-roots backlash by suburban parents, from enthusiastic funding of the war on drugs to a gathering consensus that the war had little effect on marijuana use. Now, for the first time, marijuana legalization is winning majority support in public opinion polls and a drug used by about 6 percent of Americans — and one-third of the nation’s high school seniors — is starting to shake off its counterculture reputation. It is winning acceptance even from some police, prosecutors and politicians.
But is this time really different? Why is the current campaign for legalization resonating when previous ones did not? Today’s leap toward legality is entwined with the financial desperation of cash-strapped states, an Internet-driven revolution in how Americans learn about marijuana and its medicinal uses, and a rising libertarian sensibility in which many liberals and conservatives alike have grown skeptical of government’s role in telling citizens how to medicate themselves.
The momentum is now obvious and it is great to see the drug warriors in retreat, but marijuana is still considered contraband in 48 states and under federal law. There is still much work to do. It costs money to start and win initiative campaigns, for example. It used to be hard to raise money because donors thought it was a hopeless cause. Now potential donors are making the mistake that legalization is “inevitable.” The shift in public opinion helps, but it does not assure political action. To complete the job, friends of legalization need to step up their efforts. The next state to consider marijuana legalization–by initiative–will be Alaska this summer.
For more info on Cato’s work, go here.
Juan Carlos Hidalgo
The arrest on Saturday of Joaquín “El Chapo” Guzmán, leader of the Sinaloa Cartel, is no small feat. He was perhaps the world’s most wanted man, and his capture certainly represents a major political victory for Mexico and its president Enrique Peña Nieto. But just like the killing of Pablo Escobar in 1993 didn’t end the war on drugs, the downfall of Joaquín Guzmán won’t put an end to drug trafficking in the Americas.
As leader of Mexico’s largest criminal organization, “Chapo” was the central figure in the breakout of drug violence in that country. In 1992, Guzmán decided to invade the turf of the Arellano Félix brothers in Tijuana. Years later he also declared war on the Juárez and Gulf cartels, thus unleashing years of unprecedented bloodshed in northern Mexico. Eventually he would succeed in controlling most of the lucrative routes, and his organization would become responsible for nearly half of all illegal drugs coming into the United States.
His power relied not solely on plomo (lead) but also plata (money). Some years ago, high-ranking officials at Mexico’s Attorney General’s Office were arrested for receiving bribes from the Sinaloa cartel. The sums were staggering: between $150,000 and $450,000 per month. Guzmán’s organization was also actively engaged in buying the support of policemen. According to the Secretariat of Public Security, every year the cartels spend approximately $1.2 billion dollars bribing 165,000 cops all over Mexico (just as a comparison, the Merida Initiative, Washington’s aid package to Mexico and Central America to fight organized crime, totals $1.6 billion).
Without a doubt, Guzmán’s capture is a huge success for Enrique Peña Nieto. In the last seven months, the leaders of Mexico’s top three drug cartels (Zetas, Gulf and Sinaloa) were arrested without a single shot being fired. So, are we on the verge of wining the war on drugs? That all depends on what ultimate goal is. Is it taking down drug kingpins or stopping the flow of drugs into the United States? If it’s the latter, the war is far from over. A report from the Office of Intelligence and Operations Coordination of the U.S. Custom and Border Protection agency looked at drug seizure data from January 2009 to January 2010 and matched it with the arrests or deaths of drug operatives (11 druglords in total). It found that “there is no perceptible pattern that correlates either a decrease or increase in drug seizures due to the removal of key DTO [drug trafficking organization] personnel.”
The latest National Drug Threat Assessment report from the Justice Department indicates that while cocaine availability has been declining since 2007, that of marijuana, heroine and methamphetamine is on the rise. In the case of cocaine, the fall in availability hasn’t produced a sharp increase in its street price, as the graph below shows:
We shouldn’t expect a major decline in the flow of drugs into the United States, just as such didn’t occur after Pablo Escobar, then the leader of the powerful Medellín cartel, was killed in December 1993.
The consequences on the dynamics of violence in Mexico are yet to be seen. Sinaloa is the last major drug organization with a semi-pyramidal structure in that country, and it’s also the most professionally run. Two of “Chapo’s” top lieutenants, Juan José “El Azul” Esparragosa and Israel “El Mayo” Zambada remain at large. It’s likely that they already had in place a succession plan in case Guzmán was arrested. Some experts even speculate on a new generation of drug kingpins taking over Sinaloa. So it isn’t sure that the cartel will implode or disintegrate. Nor we should expect an outbreak of violence as other cartels try to move into Sinaloa territory. That didn’t happen when Miguel Ángel Treviño, leader of the Zetas, was arrested last July.
The arrest of “Chapo” Guzmán is being seen as a major triumph in the battle against organized crime in Mexico. But his capture doesn’t bring us any close to victory in the war on drugs.
Radio talk show host Laura Ingraham recently penned a criticism of an excellent column written by George Will about immigration. Although George Will is more than capable of defending himself, I thought I should step in and push back against many of Ingraham’s points.
The first two arguments made by Ingraham respond to practical political concerns – the midterm elections in 2014:
Will claims that the GOP should not focus its arguments in 2014 solely on Obamacare. I agree, and so do other conservative opponents of immigration reform. But that hardly proves that we will benefit politically from giving in to the president on his top priority and yielding a huge political victory to the Democrats that will boost their morale and devastate many people in our base.
Will maintains that if the GOP enforces unanimity on major issues, it will not grow. GOP supporters of reform are not being silenced or pushed out of the party. And, again, I don’t see the political benefits of siding with the president and House Minority Leader Nancy Pelosi (D-Calif.) against the conservative base on such a vital issue. The easiest way for the GOP to do very poorly in 2014 would be for its base to stay home, and that is more likely to happen if conservative voters watch the GOP cooperate with the president on immigration.”
Many Republicans are looking at polling data, months in advance, and counting their electoral chickens before they hatch. The train wreck of Obamacare will likely help Republicans in the 2014 elections. I’m not a political strategist so I won’t comment on Ingraham’s or Will’s arguments about that. Ingraham, however, misleadingly leaves off the name of prominent conservative Republicans who support immigration reform, namely Senators Marco Rubio (R-FL) and Jeff Flake (R-AZ). It is true that President Obama and Rep. Nancy Pelosi (D-CA) support immigration reform, but excluding conservative backers makes the bipartisan reform effort appear entirely Democratic – which it isn’t.Will contends that it is ‘unworthy’ of conservatives to conclude that immigrant voters will always vote for Democrats. This is a plea for hope over experience. Of course conservatives should be trying to get immigrants’ votes. Of course they should never give up on any voting bloc. But poll after poll has shown that Hispanic voters (many of whom are immigrants) overwhelmingly support the Democratic Party — not just because of immigration, but also because they generally agree with Democrats on fundamental questions of how much the national government can and should do. In light of these data and the experience of California — which has shifted from a Republican stronghold to one of the most liberal states in the country, in large part because of the rise of its immigrant population — it is absurd to pretend that allowing even more immigrant voters wouldn’t be a boon to the Democrats.
Ingraham is right that most modern day immigrants and their immediate descendants vote Democratic – a fact that has been true since 1798 when the Federalist Party blamed Irish and French immigrants for many of the problems in America, driving immigrants and their descendants to the proto-Democratic Party. Interestingly, the Northern Democrats remained the party of laissez-faire and free trade up until the later 19th century. During that entire time, they earned the votes of immigrants.
After the Republican Party became the party of limited government and the Democratic Party became the party of big government, immigrants kept on voting Democratic. Italian and Irish immigrants didn’t suddenly switch their ideology, they continued to vote for the political party that was nice to them and that welcomed them into their ranks – the Democrats. With few exceptions, this trend has continued to this day.
Constituencies will neither vote for nor listen to the political candidates of the party that they think doesn’t like them – Republicans in this case. It’s not surprising then that immigrants do not listen to GOP talking points, listen to the Democratic ones, and express support for the latter in polls and in the voting booth. Imagine that you are a Hispanic immigrant, Asian immigrant, or the child of either; would you be more likely to support the political party that welcomes you to America or the one that wants to deport your friends and family?
Regarding my home state of California turning Democratic because of immigrants, another interpretation fits the data much better: The California State GOP alienated immigrants and their descendants by blaming them for all of the state’s problems in the 1994 reelection campaign of Pete Wilson (R) and the poorly crafted and supported Proposition 187.
California ElectionsElection Hisp. Vote for Dem Hisp. Vote for GOP Dem. Plurality Hisp. Hisp. % of Vote Net Edge Hisp. Gave Dems 1998 (Governor)
Source: California’s Expanding Latino Electorate, California Opinion Index, May 2000.
In the two governor elections in California that I have data for prior to 1994, 46 percent and 47 percent of Hispanics voted for the GOP – giving the Democratic gubernatorial candidates a less than one percentage point advantages in those elections. In 1994, when the GOP blamed most problems in the state on unauthorized immigrants, and many unofficial groups closely aligned with the GOP that year even blamed all immigrants for California’s problems in a particularly tone-deaf campaign, Hispanic vote shares for Pete Willson dropped to only 25 percent while the 1998 GOP candidate received a mere 17 percent. All of this occurred at a time when the Hispanic voting population of California was expanding dramatically.
Hispanics in California voted for Democrats over Republicans prior to 1994, but prior to the GOP blaming unauthorized immigrants for California’s problem (many Hispanics in the state interpreted “unauthorized immigrants” to mean “Hispanics”), the difference was minor. Beginning in 1994 and afterwards, Hispanic support for the Democratic Party was overwhelming and explains much of that party’s electoral gains in California. Immigrants didn’t turn California into an overwhelming Democratic state – the GOP’s reaction to immigration mostly did that.
He also contends there is no ‘data’ showing that U.S. culture has lost its power to assimilate immigrants. But today 20.8 percent of Americans don’t speak English at home — up from 17.9 percent in 2000. In a 2011 Pew Research Center survey, Hispanic voters (again, many of whom are immigrants) were more hostile to the word capitalism than almost all other groups surveyed — including self-identified liberal Democrats. The Hudson Institute reported last year that “[b]y 21 percentage points (65% to 44%), native-born citizens are more likely than naturalized immigrants to view America as ‘better’ than other countries as opposed, to ‘no better, no worse.’” In fact, on 20 separate issues, it found a large gap on matters of patriotism and civic understanding between native-born Americans and citizen immigrants. Among immigrants today, it is increasingly fashionable to reject American exceptionalism in favor of multiculturalism. To pretend that this isn’t happening isn’t optimism; it’s sheer fantasy.
Will’s comments are an implicit comparison between the present day rate of immigrant assimilation compared to the assimilation rate of previous waves of immigrants, like Italians, Germans, and the Irish. Good data from 100 years ago about rates of immigrant assimilation do not exist but we can all agree (hopefully) that it was successful – although nativists a century ago were screaming that those immigrants could not assimilate. Ingraham’s statistics only compare data from 2000 onwards, which hardly shows that America’s ability to assimilate immigrants has deteriorated over the last century. Non-English speaking immigrants throughout American history have rarely taken up English immediately.
Samuel P. Huntington in his book Who Are We?makes predictions about Hispanic assimilation rates in the United States, arguing that they will not assimilate. Ingraham seems to be getting many of her dire predictions about assimilation from Huntington’s writings or from those who support his pessimistic thesis. Citrin et al. tested Huntington’s hypotheses in their paper published in the journal Perspectives on Politics. They found that Huntington’s dire predictions were not coming true:
- Hispanic immigrants and their descendants acquire English and lose Spanish rapidly beginning with the second generation and appear no more or less religious or committed to the work ethic than U.S.-born Caucasians.
- English fluency has always been a mark of being American. 86 percent of those with families originally from Mexico speak only English or speak it very-well, compared to 94 percent of people of Asian origin. Although bilingualism is more common among Hispanics of Mexican ancestry, Spanish gets rapidly replaced by English as the dominant language.
- Linguistic minorities generally accept that English is the country’s common language and that learning English is essential for economic advancement.
- A clear majority of Hispanics reject a purely ethnic identification.
- American patriotism grows from one generation to the next and self-identification as “American” increases dramatically.
- After adjusting for age and education, U.S.-born Hispanics are more patriotic than the average U.S.-born non-Hispanic. Despite the hyperbolic claims of President Theodore Roosevelt, hyphenated Americanism does not produce less patriotism.
- A traditional pattern of political assimilation amongst Hispanics appears to prevail.
- By the third generation, the preferences of Hispanics on numerous cultural and political issues more closely resemble those of whites and blacks than those of first generation Hispanic immigrants.
No doubt the opinions of the immigrants themselves on these issues are quite different from U.S.-born Americans, but that is the wrong group to measure when comparing assimilation rates. Assimilation is a process that takes generations and always has – with few exceptions. The present U.S.-born generations that follow immigrants assimilate at a historically steady pace that has recently improved along some dimensions. This rate of assimilation is occurring despite the large number of Hispanics who are unauthorized immigrants. Looking at educational attainment rates and wage growth for unauthorized immigrants legalized in the 1986 amnesty, if current unauthorized immigrants were legalized then the rate of their assimilation would increase.
Will claims that conservative opponents of ‘reform’ support the ‘East Germanization’ of our border. This is an outrageous assertion — East Germany tried to keep its people from escaping a vile dictatorship. By contrast, conservatives simply want the U.S. government to fulfill a top priority of any government — defending our borders to ensure that the benefits of American life belong only to those people who are here legally. That’s not happening now. Will relies on a blog post from Brad Plumer of The Post to claim that our southwestern border security is 84 percent ‘effective.’ But that post also noted that in 2011, 85,000 people successfully crossed our Southwest border illegally — and that non-government sources think the number is much higher. And Plumer also has reported that “the best outside estimate” is that the U.S. government only stops about half of all illegal border crossings from Mexico . Conservatives are wise to insist on much stricter enforcement measures.
Brad Plummer didn’t come up with the 84 percent border effectiveness figure, the Government Accountability Office did in December of 2012. I added up their data for FY 2011 and got an 81 percent enforcement effectiveness rate on the Southwest Border.
Regardless of that small discrepancy, a cheap and effective way to secure the border is by creating a large guest worker visa program for lower-skilled migrant workers. As I’ve written about numerous times before, a lawful migration pathway will channel would-be unauthorized immigrants into the legal market so Border Patrol can concentrate on security and criminal threats instead of keeping out mostly peaceful workers. The government followed this strategy in the early 1950s and thereby reduced unauthorized immigration by an estimated 90 percent while the number of Border Patrol agents decreased. Rather than further fortifying the border, a guest worker visa program is a small government solution to unauthorized immigration.
Will cites a recent Congressional Budget Office report that indicates that immigration will be good for the U.S. economy. But the CBO report states that if the Senate’s ‘Gang of Eight’ bill becomes law, U.S. per-capita gross national product would be 0.7 percent lower in 2023 than if the law were not passed. That hardly sounds like a recipe for a healthier economy.
Ingraham leaves out the portions of the CBO report that do not support her position. Although every CBO report should be taken with a big grain of salt, this is the first time they have dynamically scored legislation like this. Delving into the details of the CBO’s dynamic score, they estimated that the Gang of Eight bill would increase gross domestic production by 3.3 percent in 2023 and 5.4 percent in 2033, relative to the baseline. Ingraham is right that per capita gross national product would lower by .7 percent by 2023 but she fails to mention that it will be higher by .2 percent in 2033. Wages would be .5 percent higher in 2033 under the Gang of Eight bill. Those details are relevant to any discussion of the CBO report.
Will concludes that House Republicans are opposed to immigration reform because they have ‘only dim memories of a more dynamic United States.’ Nonsense. Does he really believe that most House Republicans can’t remember the Reagan economy or the 1990s dot-com boom? House Republicans probably are the only ones who remember that the policy of letting millions of immigrants into the country — by not adequately enforcing our borders — has already been tried and has failed. Time after time, we are told that there are 11 million illegal immigrants already here. Where’s the resulting economic boom? Why do we believe that opening the borders even more — and letting even more people pour into this market — would have a different result?
This point by Ingraham is perplexing. She claims Republicans can remember the dynamic economies of the 1980s and 1990s that simultaneously occurred with massive increases in immigration but then claims that immigration did not lead to any economic expansion. Immigration from Mexico has been about net-zero since 2006, when the economy first started to worsen thanks to the housing collapse. If low-immigration helps American workers, as Ingraham seems to claim, where is the post-2006 boom?
Historically, immigration increases during boom times and stops or reverses during poor economies. A more liberalized international labor market produced through allowing more lawful immigration will help fuel economic booms. Relaxing our deportation and immigration enforcement policies will stop hurting the economy through separating willing workers from American employers and tearing consumers away from the United States.
Finally, Will says that ‘[z]ero-sum reasoning about a fixed quantity of American opportunity is for a United States in a defensive crouch.’ Given how badly this country has been governed in recent years, it makes sense for conservatives to be more aggressive about defending us from bad ideas percolating in Washington. More important, Will has misstated the role of optimism in policymaking. The wise policymaker doesn’t assume that any policy adopted in good faith will have good results. Instead, he or she weighs the likely outcome of any new policy based on facts and experience — not sentiments and dreams. In this case, the overwhelming evidence suggests that passing immigration reform will be a political boon for liberals, weaken our national sovereignty and lower our per-capita GNP. Furthermore, recent history shows that leaders in both parties are fanatics on the topic of immigration, and they cannot be trusted to effectively enforce any significant border measure. Under these circumstances, for conservatives to sit down with President Obama and his political allies to write a bill that will reward the president would not be an act of political courage; it would be political suicide.
Ingraham dodges Will’s point. Despite the generations of bad economic policy emanating from Washington DC, the United States still does not have a zero-sum economy. As I’ve explained here and elsewhere, people create their own opportunity once here or immigrate because there is a surfeit of it. If we really do live in a zero-sum economy, then the greatest threat to future American opportunity does not come from immigration but from procreation.
Ingraham can be a very lucid writer but her piece responding to George Will is sometimes confused and does not convincingly counter his points.
Andrew M. Grossman
The Obama Administration appeared prepared to abandon a major portion of its initial greenhouse gas regulatory scheme in oral argument before the Supreme Court today. Solicitor General Donald Verrilli, defending a series of EPA rules, sought to preserve regulations reaching large industrial sources by offering up a more aggressive gambit by the agency that could potentially reach millions of smaller businesses, apartment buildings, and schools.
The problem, as EPA itself has conceded, is that EPA’s regulatory approach renders the Clean Air Act’s Prevention of Significant Deterioration program “unrecognizable” to the Congress that enacted it. That’s because GHGs are emitted in far greater quantities than traditional pollutants and PSD requirements are based on the quantities of emissions, with facilities emitting more than either 100 or 250 tons per year of any applicable pollutant being subject to an expensive pollution-control regime. For GHGs, those tonnage triggers would transform the PSD program from one aimed at only the nation’s largest sources of emissions. For that reason, after deciding to use PSD to regulate GHGs, EPA then issued a “tailoring rule” to avoid the absurd result by discarding the numerical thresholds that are specified in the law and adopting new ones thousands of times larger.
That decision was under heavy scrutiny at oral argument. Businesses challenging the rule, represented by Peter Keisler, argued that the PSD program is structured to address local air quality concerns and therefore does not extend to emissions of carbon dioxide. PSD’s triggers, monitoring requirements, requirement for local air-quality analysis, and administration by 90 separate state and local permitting authorities all demonstrate that Congress did not intend the statute to address anything like GHG, Keisler argued. So while the statute does apply to “any air pollutant,” that term cannot be interpreted to reach pollutants that cause these other statutory requirements to fail
As a fallback position, Keisler suggested that the Court might distinguish between PSD triggering—that is, whether a given facility is subject to PSD at all—and the requirements that a facility faces once it is required to obtain a permit. Under this view, GHG emissions could not trigger PSD requirements—because triggering is what forced EPA to scrap the statute’s numerical thresholds—but if a facility is subject to PSD due to other emissions, it would then have to control its GHG emissions.
Without endorsing this approach, the Solicitor General acknowledged that it would allow EPA to reach 83 percent of emissions, versus 86 percent under the more aggressive approach, without compromising its administration of the Clean Air Act or requiring it to rewrite the statute.
The Court was also receptive, with Justices Breyer and Sotomayor—seen as friendly to the agency’s position—questioning why it staked out a far more difficult position for so little benefit.
At bottom, the case comes down to the division of power between Congress and the executive branch. As Justice Scalia forcefully explained, Congress sought to withdraw all discretion from EPA as to which facilities would be subject to PSD requirements, while giving it some discretion, in the capacious term “pollutant,” to determine which types of emissions would be regulated. Justice Breyer, on the other hand, argued with equal force that agencies should have the power to make exceptions to avoid absurd or even inefficient results that would otherwise be mandated by statutory text—but even he seemed troubled by EPA’s view that the statute’s use of the term “pollutant” necessarily obligated it to regulate GHGs.
Justice Kagan, for her part, tooks issue with Justice Scalia’s view that the term “pollutant” might be subject to any interpretation that excludes GHGs—despite that EPA itself has adopted a number of different definitions of the term in different programs.
The fundamental problem with the EPA’s position, though, is one that Justice Kagan identified: its solution here gives it nearly infinite discretion to do as it pleases by altering the terms of statutory law to meet its regulatory priorities. The Chief Justice, in turn, questioned whether any “intelligible principle” from Congress guides the agency when it sets its own agenda, and the limits on its own discretion, in this fashion.
The best indication of the agency’s overreaching may be the Solicitor General’s concession that the program would work, just about as well, if the Court strikes down its centerpiece, EPA’s tailoring. That the Administration’s lawyers see this as a sensible compromise only reflects the extent to which the Obama Administration, and its EPA in particular, have stretched the bounds of agency authority in the face of a lack of authorization or express limitations by Congress.
Playing fast and loose with the law has consequences. It’s anyone’s guess whether the Court will accept the proffered compromise, which still does great violence to the textual requirements of the Clean Air Act—particularly PSD’s focus on local air quality. And according to the Solicitor General, there may be no need: EPA, he said, could issue similar regulations under a different Clean Air Program, but didn’t want to because it would be more burdensome and time-consuming for the agency. That point might carry greater weight if EPA hadn’t instead attempted a massive power-grab and then spent the next four years defending actions that may well be struck down as contrary to law.
Disclosure: The author represented the State of Texas, a challenger in this case, before the D.C. Circuit.
The federal government took control of mortgage giants Fannie Mae and Freddie Mac (F&F) in 2008 and have bailed them out with $189 billion of taxpayer money.
Today the mortgage companies have returned to profitability and are paying the government dividends. All profits earned by the companies since August 2012 are going to the federal government, as discussed by the CRS and the Washington Post.
How large are the F&F dividends? You can find out from a number of data sources:
- FHFA (Table 2) shows that Fannie has paid a cumulative $114 billion in dividends to the government, while Freddie has paid $71 billion.
- FHFA data show that F&F together paid $131 billion in dividends in calendar 2013, which matches what BEA Table 3.2 shows for federal “income receipts from assets” (dividend portion).
- CBO (p. 101) says that F&F dividends received by the government were $97 billion in fiscal 2013 and will be $81 billion in fiscal 2014. Curiously, the CBO does not report how large future dividends are expected to be because they account for F&F going forward based on a net subsidy approach.
Here is the important thing for budget wonks and reporters: the money now pouring into the Treasury from F&F is not counted as “revenues” but as “offsetting receipts.” Those receipts are subtracted from federal spending before the “net outlays” reported by CBO and OMB, which people may wrongly assume is total federal spending.
Thus the government was reported to have spent $3.5 trillion in fiscal 2013, but without the F&F offset spending was $3.6 trillion. It is a similar story in 2014. And without the F&F dividends, federal deficits would be about $100 billion a year greater than reported.
Looking ahead, a fear is that with the return to profitability of F&F, politicians will get hooked on the inflows of cash, particularly since it has the magical effect of reducing reported spending. Reformers should press on with privatization and severing government ties to the mortgage companies as soon as possible.
Christopher A. Preble
Someone has begun leaking elements of the Pentagon’s FY 2015 budget, and the leakers apparently want reporters to focus on proposed cuts in the U.S. Army. The headline in the New York Times warns readers that the Army will shrink to “a pre-World War II level.” “The proposal,” explains the Times, “takes into account the fiscal reality of government austerity and the political reality of a president who pledged to end two costly and exhausting land wars. A result, the officials [who leaked to the Times] argue, will be a military capable of defeating any adversary, but too small for protracted foreign occupations.”
“You have to always keep your institution prepared” for the unknown, a senior Pentagon official told the Times, “but you can’t carry a large land-war Defense Department when there is no large land war.”
Reaction from other Beltway insiders has been predictably apoplectic, but one doubts that the American public are terribly worried about a military that might be slightly less likely to get involved in unnecessary and counterproductive nation-building missions in distant lands. The war in Afghanistan started with strong public support, as it was clearly connected to the events of 9/11. It no longer is, and Americans want out. The salespeople for the war in Iraq tried to connect that escapade to 9/11, but the Iraq war effort also lost public support when that rationale fell away, and the costs mounted into the trillions.
In this case, at least, the public is smarter than the politicians who supposedly represent them. Americans were unenthusiastic about the Libya caper of 2011, and they effectively blocked efforts to embroil the United States in the Syrian civil war last fall. The Pentagon’s budget might finally be reflecting the reality that the American people actually want President Obama to do what he said he was going to do: focus on nation building at home.
But the news is not all good. The Pentagon apparently still intends to retain 11 aircraft carriers, possibly cutting into modernization of the Navy’s surface combatant ships. As had been reported earlier, the venerable A-10 attack aircraft is going away, but the Pentagon remains committed to the troubled F-35. The early details don’t address the possible modernization of the nuclear triad, which is sure to compete with other Air Force and Navy priorities. If the Pentagon isn’t serious about confronting those tradeoffs, the resulting infighting could get ugly.
And there is a hint of the perennial Washington Monument strategy in the details that have been leaked so far. By proposing to cut some very popular programs, Pentagon budgeteers might hope that they can scare Congress into busting the very modest budget caps currently in place. The White House presumably would accept higher taxes in exchange for a bit more spending. Republicans in Congress want domestic spending cuts to offset additional military spending. And neither side seems inclined to add to the deficit. So it is hard to see how that impasse gets broken. For now, the Pentagon’s budget apparently fits the spending cap of $496 billion negotiated late last year, but additional cuts will be needed if the sequestration provisions of the 2011 Budget Control Act take effect in 2016 and beyond.
As more details dribble out today and into next week, it is important to keep everything in context. True, the Army will be smaller, declining from a post-Iraq high of 566,000 in 2011, to perhaps as few as 440,000 active-duty troops, about 40,000 fewer than the late 1990s average. But the force retains enormous capabilities across a range of contingencies. In the words of the senior Pentagon official, this “very significant-sized Army” is “going to be agile. It will be capable. It will be modern. It will be trained.”
That sounds like the kind of force that Americans want and expect. Given rapidly rising personnel costs, and the great political difficulty of reining them in, the only way to achieve actual savings may be a smaller active-duty force. That is what Ben Friedman and I suggested over three years ago, and with this latest proposal, we might actually be heading in that direction.
For many people free markets seem cold and calculating. Maybe it’s the best way to sell, say, automobiles and soap. But we shouldn’t like the process. And we certainly shouldn’t base our behavior on markets when basic concepts of right and wrong are at stake.
Of course, markets are no substitute for understanding what the good life is all about. However, markets offer a powerful tool to reinforce underlying moral values.
One of the great tragedies of the modern age is the slaughter of elephants. Ivory long has been a widely desired decorative material.
Unfortunately, these days most new ivory comes from poachers. The killing of elephants has sparked a new form of prohibition, with steadily tighter controls over ivory sales.
As a result, elephants have turned into modern day bison—simultaneously owned by no one and more valuable dead than alive. The result has been devastating for elephant populations in many African states, with upwards of 40,000 elephants being killed annually.
In fact, about the only advocates of the giant creatures are Westerners who see the animals in zoos or on carefully controlled safaris. In contrast, struggling developing nations must manage wildlife reserves and deter poachers while facing what they see as far more pressing human needs.
Worse is the situation facing villagers and farmers. Residents of the industrialized West wax eloquent when talking of faraway elephants, but to locals the creatures are giant rats, threatening and destructive.
Thus, despite much effort, activists and governments have not been able to stop the massacre of elephants. Yet faced with the failure of prohibition, the usual suspects only propose more of the same.
They are pushing countries to destroy existing ivory stockpiles, acquired from elephants which died naturally or were culled, as well as seized from poachers. Groups also are pressing to ban even the sale of antique ivory, as if outlawing ancient objects could bring back long-dead elephants. Even more improbable have even been proposals that Western nations deploy military
Without a change of tactics, elephants could disappear from some African countries. Yet some in the West favor morality lectures rather than practical innovations.
Moral suasion always is worth a try. But what happens after preaching fails?
Use markets to reinforce the moral message. Observed the international conference covering endangered species (CITES): “provided that their full value (i.e. both intrinsic and extrinsic) is fully realized by the landholders involved, not only will elephants be conserved but so will the accompanying range of biodiversity existing on such land.”
It’s not a jump into the unknown. Before 1989 Botswana, Malawi, Namibia, South Africa, and Zimbabwe allowed legal sales. The same countries generally enjoyed expanding elephant populations, in contrast to the shrinking herds evident elsewhere in Africa.
Even today, after closure of these ivory markets, some governments sell licenses to hunt elephants when the population exceeds the land’s capacity. Where the money is shared locally, noted analyst Peter Fitzmaurice, “Damaged land and crop losses are not only being tolerated, but villages are doing their best to guard against poachers.”
More needs to be done. Observed CITES: “A legal trade in ivory, elephant hide and meat could change current disincentives to elephant conservation into incentives to landholders and countries to conserve them.”
Some activists appear to believe that it simply is morally wrong to trade in animals, or at least elephants (speciesism lives!). But markets have been used elsewhere to help save endangered species, such as vicunas, tigers, and crocodiles.
Why not elephants too?
The current system formally treats elephants as sacred, thereby leaving them for dead. Markets would treat elephants as commercial, thereby keeping them alive.
If asked, elephants likely would prefer the second policy. So should we.
I like everything about this British political poster, including the way the smoke coming out of the chimneys forms tiny question marks. It was employed in the 1929 election against Ramsay MacDonald’s Labour Party. The artist is reported as V. Hicks. If only it weren’t still so relevant! (Wikimedia link)
“I can’t in good conscience allow the U.S. government to destroy privacy, internet freedom and basic liberties for people around the world with this massive surveillance machine they’re secretly building.” – Edward Snowden
Have you ever heard someone say, “Why do I care about privacy? I have nothing to hide.” Some even go on to add, “if it stops all of this violence, then I’m actually for a little invasion of my privacy.” Sometimes another inaccurate argument might be presented when discussing online privacy: “Free men love liberty, and criminals crave privacy.”
Perhaps Ben Franklin countered these statements best when he warned “those that would trade freedom for a little temporary security, deserve neither and will soon lose both.” Do you wonder why Ben sounded so indignant?
He knew that if you did not aggressively protect your rights, you would be jeopardizing the rights of others, as well. He was insulted that one would be willing to weaken Liberty, for all, through their careless negligence.
We all bear the costs of increased surveillance in our country, and although it levies all taxpayers, not all costs are financial. It infringes on everyone’s private life, not just those that are willing to allow it. It compromises everyone’s officials and leaders. Their decisions affect everyone in society, not just those that yielded their Liberty. These leaders include those in the political, military and private sectors. Information used to blackmail a corporate leader might have far reaching consequences that affect many of us, not just a few. These consequences could be more serious in the event that a senator’s (or a military general’s) decision was compromised. This unreasonable intrusion into our privacy generally increases our distrust of one another.
Lack of privacy also inhibits the dissemination of sensitive information necessary for “whistle blowers” to bring tyranny into the open, affecting everyone. If a state official sees something wrong or unethical being performed by an institution in which they have insider information, they might anonymously leak this information to the press so that a public discussion can begin to change what is happening. If they know that “leaks” are not anonymous, and their careers, or even their lives, would be jeopardized with reprisals from unscrupulous individuals, these “whistleblowers” might remain silent. In this case, it is not a criminal that “craves” privacy, but someone trying to end corruption. Journalists and other members of a free press understand this concept well and defend their right to protect the privacy of their sources tenaciously. This could affect you!
Privacy has financial value. Consider Congressman Blackburn’s formal remarks: “What happens when you follow the European privacy model and take information out of the information economy? … Revenues fall, innovation stalls and you lose out to innovators who choose to work elsewhere.” We have also seen an unwillingness of foreign corporations to purchase American- made computers and components because they are correctly suspicious that these goods will make them vulnerable to industrial espionage. This hurts our bottom line directly.
Additionally, donors might crave privacy. Often donations are made anonymously for any number of good reasons. Perhaps the person would like to avoid additional solicitations from other individuals or charities once their generosity was made public. Perhaps a donor would prefer his politics remain unknown to the public so that he may continue to do business with those that may have strong opinions opposite of his own. Perhaps the donation might reveal vulnerabilities of the donor in other ways. One example might be if a donor would like to contribute to a cause that is socially sensitive, such as ending prohibition during the twenties. Whatever the reason, donors that might be good people, championing good causes, could also “crave” privacy.
But privacy has another intrinsic value. Billy Graham put it simply when he said,“Once you’ve lost your privacy, you realize you’ve lost an extremely valuable thing.” It might be hard to imagine not having privacy. Think about how you’d feel if you found out that you forgot to zip up your fly while at a party, or as a young teenager, your parents listened in on every phone conversation you had with your friends. Privacy allows us to develop normally and psychologically as human beings. Think about what Marilyn Monroe might have meant when she said, “A career is born in public – talent in privacy.”
In a few sentences, the framers of the Constitution seemed intuitively to understand and cherish our right to avoid unreasonable intrusions into our private, and perhaps even public, lives. Let’s examine the evolution of the uniquely American concept of privacy, unreasonable searches, and the creation of the Fourth Amendment:
In February 1761, a lawyer named James Otis argued unsuccessfully against “Writs of Assistance” in the defense of merchants who had failed to pay duty to the English Crown on smuggled goods. Writs of Assistance were broad-based warrants that allowed for general searches for no one specific and no place in particular. They could be used by custom officials whenever they wanted to search for smuggled or stolen goods and written materials expressing political dissent.
Often, these searches were destructive to the owner’s property on which they were conducted. Often, property not related to the original infraction was seized. Otis offered a passionate plea to the courts: when no standard for issuing warrants existed, the subjects of those searches become the victims of “petty tyrants.” He explained, “[C]an a community be safe with an uncontroul’d power lodg’d in the hands of such officers, some of whom have given abundant proofs of the danger there is in trusting them with ANY? …Every one with this writ may be a tyrant; if this commission be legal, a tyrant in a legal manner also may control, imprison, or murder any one within the realm. In the next place, it is perpetual; there is no return. A man is accountable to no person for his doings. Every man may reign secure in his petty tyranny, and spread terror and desolation around him.”
In 1763 and 1765, two separate cases involving the ransacking of pamphleteers homes and the seizure of property related to sedition charges resulted in the British judge on both cases, Lord Camden, overturning them on the basis that the searches were illegal. (Pamphleteering was the 18th century equivalent of “blogging”!). And on June 10, 1768, John Hancock’s gaff-rigged Sloop, “Liberty,” was seized by the British after a search at sea turned up smuggled wine. John Hancock was at the time one of the wealthiest merchants in Boston and blatantly disregarded paying taxes to the Crown on imported goods. To make matters worse, the Captain and crew of the “Liberty” kidnapped the British customs official that had discovered the boot-legged wine and held him prisoner (in part, because the cheeky official wouldn’t consider taking a bribe!) until they could offload most of their cargo at dock, duty-free. A riot and some fisticuffs later, and the “Liberty” was commandeered in port by the British.
John Adams defended Hancock in five months of legal wrangling which led suddenly and unexpectedly to dropped charges. It would later be Adams that would distill the angst of the period in legal language for the Massachusetts Constitution:
“Every subject has a right to be secure from all unreasonable searches and seizures of his person, his house, his papers, and all his possessions. All warrants, therefore, are contrary to this right, if the cause or foundation of them be not previously supported by oath or affirmation, and if the order in the warrant to a civil officer, to make search in suspected places, or to arrest one or more suspected persons, or to seize their property, be not accompanied with a special designation of the person or objects of search, arrest, or seizure; and no warrant ought to be issued but in cases, and with the formalities prescribed by the laws.”
Congress would edit and narrow the language that would lead to the adoption of this language as the Fourth Amendment within the Constitution:
“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”
It is interesting that Adams argued that even a commercial merchant vessel was immune to searches “without any probable cause” and that his language in his state Constitution was broader in scope of the protections eventually granted in the US Constitution. Though many authors contributed to the final wording (including James Madison), Adams probably had the most intimate experience with aberrant conditions prior to any law being enacted.
It is also worth noting that it was the illegal search of the homes or vessels that mandated a “not guilty” verdict, even though the defendants, in these cases, were probably guilty of some misdeed. It was clearly established that probable cause was the proper measure of a search or seizure, and any fact discovered afterwards, in the event of a improper search, was null and void.
Could it be then, that the framers saw the necessity, on occasion, for lawbreakers to be protected from unreasonable searches and seizures? Much as the right to bear arms implies that those arms might be used one day to guard against tyranny, maybe the right to be free from unprovoked, and possibly condemning searches might be necessary to protect a public accumulating contraband to resist tyranny. In both cases, an illegal act, or the threat of an illegal act, might be necessary.
Imagine a scenario where an ethical person might be compelled to act illegally in the face of a tyrannical regulation or law. History is replete with examples. Consider what it would mean to harbor an escaped slave in antebellum times; or a Jew during the Nazi occupation of Poland; or to protect a rare library of astronomy books during the Spanish Inquisition, or to sequester guns and grenades for the French Underground during the German occupation of France. These examples — and there are plenty more — were not necessary for the framers; they had had experiences of their own.
So, why do we find the Fourth Amendment applicable to today’s society even with huge technological advances the founders could not have envisioned in their time? It is because it is not a document discussing technology. It is a document discussing ethics and principles. It is discussing ideas. Ethics and principles do not change within the human species very much. What is fair today was fair 2000 years ago and will still be fair in 2000 years to come.
The Fourth Amendment applies to today’s technology because an “unreasonable search” occurs when the government violates a person’s expectation of privacy during a phone call or even an internet connection. Even though a search may be electronic, digital, or some future, yet undiscovered technology, rather than a physical one, it is still a “search” covered by the Fourth Amendment. You should be able to reasonably expect your privacy.
Having left communist Russia, Ayn Rand knew about the expectation of privacy and “petty tyrants.” She said “civilization is the progress toward a society of privacy. The savage’s whole existence is public, ruled by the laws of his tribe. Civilization is the process of setting man free from men.” So, the next time someone asks you if you are concerned about your Fourth Amendment rights, remember that those rights set you free from other men. One’s answer should be: “Very…”
For the fourth day in a row, the Arkansas House of Representatives has refused to approve the yearly appropriation for its Medicaid program, dubbed the “private-option.” If the legislature continues this refusal and reverses its decision to expand Medicaid under Obamacare, state and federal taxpayers will save billions of dollars, making the Little Rock legislative battle the most important spending fight in the country.
Last spring, Arkansas made headlines for adopting a “free-market” alternative to Medicaid expansion. Instead of expanding using the traditional Medicaid model in which the federal and state government would directly fund enrollees’ care, Arkansas decided to provide subsidies to 250,000 new enrollees, so that they could purchase private health insurance through the bureaucratic exchanges created under Obamacare. By using private insurance, supporters claimed, Arkansas would be able to provide individuals with insurance coverage and protect them from the broken Medicaid system that fails to provide “significant improvements” to enrollees’ health.
Medicaid expansion will cost the federal government $800 billion over the next 10 years if all states expand their qualification thresholds for the program as Obamacare’s architects want. (Currently, only half of the states have obliged.)
Arkansas’ expansion is actually even more expensive than the traditional expansion model envisioned by President Obama and Health and Human Services Secretary Kathleen Sebelius. According to the Congressional Budget Office, private insurance actually costs 50 percent more than traditional Medicaid coverage. Earlier this month, Arkansas Gov. Mike Beebe, a supporter of the private option plan, acknowledged that the plan costs the federal government—read taxpayers—more. Under the conservative estimates from the state, Arkansas’ expansion will cost $20 billion over the next 10 years.
Arkansas’ actions could affect other states. Following its expansion last year, Iowa, Michigan, and Pennsylvania expanded their Medicaid programs using a private-option model costing federal taxpayers billions more. Defunding Medicaid expansion in Arkansas would likely stop the wave of expansion, saving even more public dollars.
If opponents of the private option are successful, Arkansas will do far more to help federal taxpayers this month than anything coming from Washington.
After Solyndra collapsed, the Department of Energy (DOE) should have learned its lesson. Guaranteeing loans for energy and industrial companies is a bad idea. The failures of Beacon Power and Fisker Automotive should have driven home the message. Now, we have further proof that the DOE isn’t paying attention.
Yesterday, DOE Secretary Ernest Moniz traveled to Georgia to announce $6.5 billion in loan guarantees for two new nuclear reactors already under construction.
The loan, like so many others, has the markings of an incredible risky use of taxpayer dollars. According to the Washington Post, the project is already 21 months behind schedule. Additionally, Southern Company, the largest shareholder of the project, had its ratings’ outlook downgraded from “stable” to “negative” by Standard and Poor’s last year, in part because of “cost overruns” at the Georgia facility.
Even more frustrating, the company already had private loans in place to finance construction. Now we, the taxpayers, will save the company $250 million a year in interest costs by bearing the full burden of default.
The company also benefits from $2 billion in other federal tax credits, according to its CEO.
In the media, one hears two different stories regarding the drought in California and Western water problems in general. Liberals say that droughts are being made worse by climate change. Conservatives say that water shortages are being perpetrated by the EPA in a misguided effort to sacrifice farmers for some tiny fish. The Washington Times editorial today is of the latter genre.
The real story is more complicated. It’s not just Mother Nature, and it’s not just farmer vs. fish.
The fundamental problem is that the federal government has been heavily subsidizing Western water for decades, particularly for crop irrigation. Artificially low water prices have encouraged overconsumption and the planting of very dry areas where farming is inefficient and environmentally unsound. Subsidized irrigation farming has created major environmental problems in the San Joaquin Valley, for example.
To make matters worse, federal farm subsidies have boosted demand for irrigation water, which has further encouraged farmers to bring marginal lands into production.
So don’t blame the Delta smelt. Instead, blame antimarket policies going back eight decades in the case of farm subsidies and a century in the case of subsidized water from the federal Bureau of Reclamation.
The long-term solution to the West’s growing water problems is free-market economics. Policymakers should end the farm subsidies, reform water property rights, transfer federal dams and aqueducts to state ownership, and move toward market pricing of water.
Daniel J. Mitchell
Did you sing “Happy Birthday”?
The nation just “celebrated” the fifth anniversary of the signing of the so-called American Recovery and Reinvestment Act, more commonly referred to as the “stimulus.”
This experiment in Keynesian economics was controversial when it was enacted and it’s still controversial today.
The Obama administration tells us that the law has been a big success, but I have a far more dour assessment of the spending binge. Here’s some of what I wrote about the topic for The Federalist.
The White House wants us to think the legislation was a success, publishing a report that claims the stimulus “saved or created about 6 million job-years” and “raised the level of GDP by between 2 and 3 percent from late 2009 through mid-2011.”
Sounds impressive, right? Unfortunately, those numbers for jobs and growth are based on blackboard models that automatically assume rosy outcomes. Here’s how I explain it in the article:
[H]ow, pray tell, did the White House know what jobs and growth would have been in a hypothetical world with no stimulus? The simple answer is that they pulled numbers out of thin air based on economic models using Keynesian theory. … Keynesian economics is the perpetual motion machine of the left. They build models that assume government spending is good for the economy and they assume that there are zero costs when the government takes money from the private sector. That type of model then automatically generates predictions that bigger government will “stimulate’ growth and create jobs. The Keynesians are so confident in their approach that they’ll sometimes even admit that they don’t look at real world numbers. And that’s what the White House did in its estimate. The jobs number (or, to be more technical, the job-years number) is built into the model. It’s not a count of actual jobs.
In the real world, however, you can count jobs. As part of my Federalist article, I looked at the Minneapolis Federal Reserve Bank’s interactive website and compared the current recovery to all business cycle expansions in the post-World War II era. I did that comparison for both jobs and economic growth. The figure below shows the numbers for the labor market. The current recovery is in red, and you can see that the nation is “stumbling through the second-worst recovery for job creation in the post-WWII era.”
The next figure shows the Minneapolis Fed’s numbers for economic growth. It doesn’t seem possible, but GDP performance has been even worse than job performance. We are mired in stagnation. As I noted, “the current recovery (red line) is the weakest expansion since World War II.”
In other words, it’s very difficult to argue—looking at the numbers—that the President’s main economic initiative was a success.
So why did it flop?
I pontificate in the article, pointing out three specific problems with Keynesian economics. I start with the elementary observation that the theory is based on the notion that you can become richer by taking money out of one pocket and putting it in another pocket:
[T]here is an “opportunity cost” when government borrows money and spends it. Resources are diverted from the productive sector of the economy. This might not be a problem if government spent money wisely, but stimulus schemes tend to reward interest groups with the most political clout. So instead of outlays for physical and human capital, which at least theoretically might improve the economy’s productive capacity, the White House directed the bulk of the stimulus to redistribution programs and handouts to state governments.
I then make a critical observation about how you shouldn’t try to solve one set of bad government policies with another layer of bad policy.
[T]he Keynesians don’t seem to appreciate that recessions generally are the result of bad government policies—such as inflation, housing subsidies, etc.—that lead to fundamental and unsustainable economic imbalances. Unfortunately, more government spending often is designed to prop up these imbalances, which can create a longer and more painful period of adjustment.
The clincher, at least for most people, is the simple fact that Keynesianism simply doesn’t work:
But the biggest problem with Keynesianism is that the real-world evidence is so unfriendly. Consider, for instance, that the White House claimed that the unemployment would never climb above 8 percent if the stimulus was adopted. … Keynesian economics has a long track record of failure. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Nixon, Ford, and Carter in the 1970s. It didn’t work for Japan in the 1990s. And it hasn’t worked this century for either Bush or Obama.
And guess what? I’m going to make a very sad prediction that we’ll get more Keynesian economics in the future, but it’s easy to predict right now that these future spending binges will fail just like the previous stimulus schemes have flopped.
Dalibor Rohac and Juan Carlos Hidalgo
“All happy families are alike; each unhappy family is unhappy in its own way.” If one believes Tolstoy’s famous dictum, then the protest movements in Ukraine and Venezuela should not have much in common. However, there are several striking parallels between the events unfolding in the two countries—as well as some important differences:
1. It’s the economy, stupid!
Although the popular unrest in Ukraine was triggered by the government’s decision to cancel the agreed free trade agreement with the European Union, the popular discontent has deeper roots. After years of kleptocratic governance, which derailed the country’s transition toward a market economy, ordinary Ukrainians are desperate for change. In 1990, Ukraine’s GDP per capita was $8,200, which was roughly identical to Poland’s. Today, Poland’s GDP is $18,300 and Ukraine’s has gone down to $6,400. Unlike its post-communist neighbors to the West, Ukraine did not pursue deep institutional reforms and its economy was seized by a narrow group of oligarchs, with close connections to political power and to the Kremlin. The son of the President Viktor Yanukovych, Oleksandr, has become one of the richest men in the country during his father’s time in the office, while incomes of most Ukrainians stagnated.
In Venezuela the economic situation has deteriorated sharply since the death of Hugo Chávez last year. The country has the highest inflation rate in the world (officially 56 percent in 2013, although according to Steve Hanke’s Trouble Currency Project, the implied annual inflation rate is actually 305 percent). After years of nationalizations, expropriations, and currency and price controls—all under the name of “21st Century Socialism”—the private sector has been decimated. Hour-long lines in supermarkets are a daily occurrence and shortages of basic food staples and medicines are widespread. And just like in Ukraine, corruption is rampant as the ruling elite rake in the profits from oil revenues. This has resulted in the rise of a new privileged class called the “Boligarchs.” so-named because they’ve prospered tremendously under the so-called Bolivarian revolution. Moreover, Venezuela is now one of the most dangerous nations in the world, with almost 25,000 murders committed last year. A large segment of the population, mostly middle class, is simply fed up as the country quickly becomes unlivable.
2. Governments have responded with repression.
In Ukraine, the “Euromaidan” movement began with peaceful protests in late November, which occurred as a response to the government canceling the free trade agreement with the EU. In Kiev, the protesters gathered and set up an improvised camp on the Independence Square, called “maidan” in Ukrainian. After the protests were dispersed violently by the Berkut riot police on November 30, violence has slowly escalated, culminating in the events earlier this week, in which at least 77 people, and possibly more, died. The government has even paid thugs to infiltrate the opposition camps and incite clashes. Over past days, Ukrainian security forces used snipers and automatic weapons against protesters, resulting in large numbers of casualties.
In Venezuela, the protests began on February 12 after the government refused to release several students who had been arbitrarily detained days before. And just like the Viktor Yanukovych regime, Nicolás Maduro has cracked down on the demonstrations with unprecedented force, using the National Guard and armed paramilitary gangs. On February 19, government forces escalated their attacks against civilians, raiding apartment buildings and shooting people on the streets. The border state of Táchira is currently under military curfew. So far, at least eight people have been killed, dozens have been detained, and many are missing.
3. Foreign governments play a critical role in the events.
The Kremlin has been involved in Ukrainian affairs since its independence in 1991. After all, Vladimir Putin once called the demise of the Soviet Union “the greatest geopolitical catastrophe of the century.” Seeing Ukraine as part of its sphere of influence, Russia’s leaders have tried to use natural gas prices paid by Ukrainians as a way of extorting political concessions. Most recently, the Kremlin used gas prices to force the Ukrainian government to walk away from the free trade agreement with the EU, triggering the current unrest. Since the beginning of the Euromaidan protests, Russia has been providing the cash-strapped Ukrainian government with aid in the form of bond purchases.
The roles are slightly reversed when it comes to Cuban influence in Venezuela. Resources-strapped Cuba plays a critical role in propping up the Venezuelan government in return for much-needed oil: Venezuela provides Cuba with 120,000 barrels of oil per day, for an estimated value in 2012 of $3.6 billion (roughly 5% of Cuba’s gross domestic product). Cuban secret services control the security apparatus for the Maduro regime. Maduro himself was reportedly trained in communist ideology in Cuba in the 1980s, many years before Maduro predecessor Hugo Chávez actually came to power and ushered in the current communist government. It’s widely believed that Cuba’s ruling Castro brothers were the critical factors behind the selection of Maduro as Chávez’s successor. Without the oil, it is very likely that Cuba’s fragile economy would implode. The relationship between both countries is perhaps unique in world history as the larger, richer country has actually become a colony of its client state, up to the point that the Cuban flag flies in many Venezuelan military bases.
4. Countries seem divided by ethnicity and social status.
It has become conventional to distinguish between the pro-EU, Ukrainian-speaking part of the country and its eastern regions with closer ties to Russia. While it is true that the protest movement has gained relatively little traction in the Russian-majority regions, the ethnic and linguistic differences do not translate exactly into differences of opinion about the country’s future, with most Ukrainians, both Ukrainian- and Russian-speaking, favoring closer ties with the EU.
The division among Venezuelans isn’t along ethnic lines, but along socio-economic classes. The official—and disputed—results of last year’s presidential election in Venezuela show a country divided by halves: while Maduro obtained 50.6% of the vote, the opposition candidate Henrique Capriles got 49.1%. The regime draws most of its support from the poorest segments of the population that still receive significant government handouts, as well as public employees and the military apparatus. However, Maduro doesn’t command the same level of loyalty (and even adoration) that Hugo Chávez did with his supporters. Meanwhile, the opposition is mostly composed by the middle class and students. Unfortunately, there is a high level of hatred and mistrust between both camps that will persist for many years to come.
5. Neighbors and regional organizations are slow to respond.
Arguably, the reaction of the EU to the events in Ukraine has been excessively cautious and slow. Only yesterday did European leaders agree to impose targeted sanctions on Ukraine, including visa bans, assets freezes, and a suspension of export licenses for equipment that could be used for internal repression. In December and January, the EU did disappointingly little to articulate a potential relationship with the Ukrainian government that would be more appealing than deepening ties with Russia. Among the EU offerings: an accelerated “roadmap” to EU membership and its benefits, including free movement of people and access to the common market.
On the other side of the Atlantic, several Latin American left-wing governments have actually stated their solidarity with the Maduro regime, including the Mercosur trading bloc. Other nations with more mature democracies such as Mexico, Colombia, Peru, and Costa Rica have been silent—either out of cowardice or cynicism. Only Chile and Panama have voiced some restrained concern about human rights abuses in Venezuela. Regional coalitions such as the Organization of American States and the Community of Latin American and Caribbean States are likely to remain mum. Thus, the Venezuelan government doesn’t have to worry about being held accountable for repressing its population.
A final common trait of the two outbreaks of popular unrest against authoritarian and kleptocratic rulers is the uncertainty about the outcome. Today’s agreement in Kiev gives hope that an orderly transition toward a new constitution and a new election can be achieved. However, given that President Yanukovych has already reneged on similar promises in the past, any agreement that keeps him in power until a successor is elected is extremely fragile because of his lack of credibility. Similarly, in Venezuela, the government has refused to negotiate with the protesters, calling them “fascist.” Yet, as the discontent grows and the protests gain wider traction, they might well become a major headache to the regime.
The Common Core is slowly but surely becoming a big national issue, and three things in today’s news tell us a lot about what’s going on.
- It is a major story – it was a lead Politico article this morning – that the National Education Association, after steadily, if quietly, backing the Core, yesterday slugged it. At least, President Dennis Van Roekel came out with guns blazing against the implementation of the Core, saying that in many states “implementation has been completely botched,” and calling for a slowdown in the Core rollout. To be sure, Van Roekel didn’t suddenly say the Core is poor-quality standards, but implementation is absolutely key, and it is there that experts across the spectrum have long been crushing the Core.
- With the tide increasingly turning against them, Core advocates are no longer napping, feeling secure in the fact that Washington got a large majority of states to sign on to the Core before anyone really knew what was happening. This morning, news came out about survey results from the Core-supporting 50CAN. A big takeaway, according to 50CAN? Most people don’t know much about the Common Core, but would like it if they did: a sizeable majority support the idea of uniform standards. That’s probably accurate – in the abstract, one standard sounds nice – but what is more telling is the response to whether people trust policymakers in DC “to determine what is best for improving schools.” Only 17 percent either “strongly” or “somewhat” trust Washington. Eighty percent “do not trust” DC. Maybe that’s why Core-ites seem hell-bent on ignoring the crucial role Washington had, through the Race to the Top contest and No Child Left Behind waivers, in coercing Core adoption. So uniform standards may seem nice, but federally driven? Ick! Which brings us to our last story…
- It was reported today that Missouri State Representative Mike Lair put an $8 provision into an appropriations bill to purchase “two rolls of high density aluminum to create headgear designed to deflect drone and/or black helicopter mind reading and control technology.” This was meant to be a riproarious slap at Common Core opponents, whom Core advocates insist on tarring as kooks for fearing stuff like nationalization of school curricula. And they may, indeed, seem crazy to you if you refuse to acknowledge that the federal government, at the behest of the “state” groups that created the Core, coerced adoption. And if you ignore that Washington selected and funded two consortia to create tests to go with the Core. And if you are unaware that the U.S. Department of Education has a “technical review” panel for those tests that meets behind closed doors. And if you forgot that the federal government still requires, though it has loosened the rules, that schools be judged in part on state test performance. Yes, if you ignore reality, you could conclude that Core opponents are bonkers. But if you know and accept reality, then you know that far from being crazy, opposition to the Core is based, to a large degree, on logic and facts. Which means few at whom Rep. Lair is aiming his little joke are going to be making a chapeau with the free foil. At most, they’re going to put it to good use and make a burrito wrapper, or a solar oven, or are just going to throw it back at Rep. Lair, yelling, “stop calling me crazy, and stop wasting my eight bucks!”
K. William Watson
In an article titled “The World’s Dumbest Trade War,” Slate’s Will Oremus offers a thorough accounting of the ridiculous policy of imposing tariffs on cheap solar panels from China.
Remember, the U.S. government wants Americans to buy solar panels, and it subsidizes those purchases through rebates and incentives. The Chinese government wants Chinese companies to build solar panels, and it subsidizes their manufacture. And yet rather than celebrate this fortuitous arrangement, the world’s top economic powers find themselves on the brink of a trade war that could cripple a promising industry in both countries, kill jobs, and hurt the environment all at once. It’s a terrible trade-policy trifecta.
Trying to make solar panels more expensive to aid domestic manufacturers defeats the whole purpose of having domestic manufacturers in the first place. It aptly demonstrates the folly of green industrial policy—subsidies and tariffs to create and then maintain “green jobs”—as a rational environmental policy.
Fortunately, some countries have recognized the harmful impact of trade barriers and called for free trade in environmentally friendly products like solar panels and wind turbines. This initiative may be included in some form in the Trans-Pacific Partnership agreement. Last year, Simon Lester and I wrote a paper explaining that any such endeavor should not exclude antidumping and anti-subsidy duties like those being used here by the United States.
What’s more, as Oremus aptly points out, these duties not only reduce the viability of green energy, they harm domestic businesses that install solar energy equipment.
Unfortunately, this phenomenon is in no way unique to solar panels. The U.S. imposes a great number of antidumping and anti-subsidy duties on imports that U.S. manufacturers rely on as inputs. Check out this video to learn more about America’s economically irrational and destructive antidumping laws:
James A. Dorn
Clothing retailer Gap Inc. has won praise from the White House in announcing its decision to raise entry-level wages to $9 an hour this year, and $10 next year. President Obama applauded Gap and argued that Congress should follow suit by passing a bill to increase the federal minimum wage from $7.25 an hour to $10.10 by 2016.
But there’s a big difference between a voluntary increase in a market-determined wage rate and a government-mandated minimum wage.
Gap must report to shareholders and make a profit to stay in business; politicians report to voters and must win elections to stay in office. Polls show that the American public strongly support a higher federal minimum wage — but only if it appears to be costless.
President Obama, in promoting a higher minimum wage, argues that it would “lift wages for more than 16 million workers—all without requiring a single dollar in new taxes or spending.” This is the free lunch that politicians love to promise—and it is an illusion.
When the government arbitrarily pushes up wage rates above the competitive level, two things happen: some jobs are lost; and more workers look for jobs but can’t find them, so unemployment of lower-skilled workers increases. These effects are greater in the long run as employers switch to labor-saving technology.
When firms make adjustments in expectation of higher minimum wages (both federal and state), there will be a decrease in the number of jobs for lower-skilled workers (mostly younger, inexperienced, less-educated workers) but an increase in the demand for higher-productivity, skilled workers who complement the new technology.
Gap has already made significant investments in labor-saving technology and recently implemented a “reserve-in-store” computer program that relies on higher-skilled workers whom Gap invests in to enhance their human capital. Gone are the days when high-school dropouts could easily get a job with retailers. As Gap raises its starting wage, there will be more competition for a dwindling number of jobs. More workers will want a job, but fewer workers will be hired, and those that are will be of higher quality.
Glenn K. Murphy, Gap’s CEO, told the company’s employers upon announcing the change in policy, “To us, this is not a political issue. Our decision to invest in front-line employees will directly support our business, and is one that we expect to deliver a return many times over.”
This is free-market, Randian thinking: self-interest is the motivating factor, not altruism.
When President Obama says, “It’s time to pass [the minimum wage] bill and give America a raise,” he is making a promise that can’t be kept: some workers will gain (those who have higher productivity) but others (the least productive workers who most need a job to gain experience and move up the income ladder) will lose.
Indeed, the Congressional Budget Office now tells us that an increase in the federal minimum wage to $10.10 an hour could cost a loss of 500,000 jobs. Those most affected would be low-productivity workers in low-income families—making them poorer, not richer. (If the government promises a wage of $10.10 an hour but a worker loses her job or can’t find one, then her income is zero.) There is no free lunch!
People do what is in their own best interest. Gap may win some friends by increasing entry-level wages and saying this is in tune with company “values,” but unless that business decision is profitable Gap will lose sales, and its shares will drop in value. There is thus a market test of the decision to raise wages.
The government has no business telling private employers what to pay or telling workers they cannot offer their labor services at less than the legal minimum wage, even if they are willing to do so to retain or get a job. The President’s minimum wage is anti-economic freedom and violates personal freedom; Gap’s higher entry wage does neither. This is a case of “the emperor has no clothes!”
If you’ve wondered about charges of “creeping sharia” in American law, you really should read this week’s series of blog posts by Eugene Volokh based on an Oklahoma Law Review article. (Oklahoma is the state whose legislators passed a law banning the use of Islamic sharia and other religious law in courts, struck down by the Tenth Circuit as unconstitutional because of its specific proscription of the law of one religion as against others.) Included are installments on the courts’ enforcement of contracts, wills, and similar instruments that would call on courts to interpret Islamic law or that are motivated by desire to conform to such law; instances where American courts use foreign law that itself incorporates religious law; instances where devout Muslims claim broadly available religious exemptions from generally applicable laws or work rules; and provision in government services of accommodations that benefit devoutly Muslim customers, employees, students, or clients. Summary passage, footnotes omitted:
In many of the instances that critics see as improper “creeping sharia,” I will argue, it is longstanding American law that calls for recognizing or implementing an individual’s religious principles, including Islamic principles. American law provides for freedom of contract and disposition of property at death. Muslims (like Christians, Jews, and the irreligious) can therefore write contracts and wills to implement their understanding of their religious obligations. American law provides for arbitration with parties’ consent. Muslims can use this to route their disputes to Muslim tribunals, just like Christians, Jews and the irreligious often route their disputes to private arbitrators of their choice.
American law provides for religious exemptions from generally applicable laws and from employer regulations. Muslims, as well as Christians, Jews, and others, may claim such exemptions. American law provides for the use of foreign law in certain cases stemming from foreign occurrences (marriages, divorces, injuries and the like). Sometimes this calls for the use of foreign religious law, whether Islamic law, Jewish law, or the decisions of Christian tribunals.
Of course, American law also imposes limiting principles on these doctrines. Some contracts and foreign judgments are unenforceable. Many religious exemption requests are denied. But these limiting principles, I argue below, already adequately prevent improper recognition of Islamic law and allow recognition of such law when recognition is proper. There is no need for new law here.
…[My approach] urges courts to continue following well-established American legal traditions rather than distorting those traditions either in favor of Islam or against.