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Plenty of writers have claimed that the Federal Reserve fueled last decade’s subprime boom by holding interest rates too low for too long after the dot-com crash. But hardly anyone has tried to explain why the Fed did so.

Yours truly has taken a stab at it, together with my former student (and now eminent Market Monetarist) David Beckworth and my former University of Georgia colleague (and current Özyeğin University faculty member) Berrak Bahadir. Here is our just-published article in the Journal of Policy Modeling.

Our argument, in brief, is that the Fed blew it by not treating the exceptionally high post-2001 productivity growth rate as warranting an upward revision of the Fed’s interest-rate target (as neoclassical theory would suggest). Instead, Fed officials believed they could maintain a below-natural interest rate target without risking a corresponding increase in inflation.

We supply lots of evidence supporting our interpretation and, thereby, supporting the view that excessively easy Fed policy did indeed contribute substantially to the subprime boom. We also show how nominal gross domestic product targeting would have prevented this outcome, and that it would have done so to an even greater extent than strict adherence to a Taylor Rule.

Readers familiar with my arguments favoring a “productivity norm,” as presented in Less Than Zero and elsewhere, will understand the claims made in our paper as a specific application of those more general arguments.

The publishers have kindly allowed us to make the article available here without a pay wall for a brief period only, so consider saving it if you might want to have it for longer.

[Cross posted from Alt-M.org]

Ian Millhiser has responded to both my defense of Herbert Spencer and one from Reason’s Damon Root. Unwavering in his belief that Spencer was a monster, Millhiser has doubled down on his claim that Spencer advanced a kind of “genocidal libertarianism.” Millhiser has rightly retreated, however, from boldly claiming, without evidence, that Rand Paul is a fan of Herbert Spencer. I thank him for his response, and I offer a few more thoughts on Spencer here.

First, it’s clear that Millhiser is an active and vehement opponent of libertarianism. He seems to believe–although I don’t want to put words in his mouth–that libertarianism is inherently “genocidal,” regardless of whether it’s advocated by Spencer, Ayn Rand, Friedrich Hayek, or Milton Friedman. So, on one level, Millhiser’s reaction to Spencer is simply a reiteration of his distaste for libertarianism and, insofar as that is the source of Millhiser’s discontent, I’m not going to try to argue with him that libertarianism isn’t inherently a cold, heartless philosophy. The possibility of that debate being productive is long passed.

But is there something particularly odious about Spencer’s brand of libertarianism, as Millhiser seems to think? Spencer writes with the peculiar verve of a 19th-century British intellectual, coming from the same milieu as anthropologists who would blithely discuss the “savage and uncivilized mongoloid and negroid races.” Similarly, Spencer would insouciantly attack the lazy, shiftless, and incompetent.

Post-modern relativism makes us balk at these absolute terms. In modern politics we tend to think more about the conditions into which people are born rather than their personal responsibility. Discussions of the “deserving poor” and “undeserving poor” are now largely uncouth.

But to Spencer, as to most 19th-century political and social theorists, the distinction mattered. Like many modern libertarians and conservatives, Spencer was very concerned that profligate and indiscriminate assistance for the poor would incentivize bad behavior. Although many on the left loathe the idea that welfare can create bad behavior, most people understand that concern. To anyone who’s ever had to cut off ne’er-do-well friends or family from further charity in order to help them out, those concerns make sense.

Viewing society as something like an organism, Spencer thought broadly about how laws and policies could either encourage or discourage certain behaviors. As a Lamarckian–someone who believes acquired traits are heritable–he was concerned that those bad behaviors would be transmitted down through the generations. His end goal was an affluent society based on voluntary interaction in which sympathy for fellow men thrived. If the government did too much to encourage certain types of harmful behavior, then Spencer feared that, in the long run, the pain and suffering would be greater.

What types of harmful behavior? Spencer was surely against the cronyistic businessman who prefers to use government to extract from taxpayers rather than building an honest business that adds to the sum total of wealth in society. In a system that cultivated such people, the doctrine of “survival of the fittest” would mean that “the fittest” were cronies rather than honest businessmen. Under his view of social evolution, the cumulative effect of such crony-supporting policies would be a society in which innovative entrepreneurs are replaced by cronies who lack creativity and pluck and do business with an army of lobbyists. Laws that perpetuate such cronyism would be “acts of parliament to save silly people,” to use a Spencer quote cited by Millhiser.  

Similarly, Spencer would also oppose the person who resides on the dole without working, the kind of person the British press, in particular, loves to highlight. Spencer believed, not irrationally, that facilitating such behavior will only breed more of it. Most importantly, in the long run there will be great suffering in societies that massively facilitate such behavior, whether it is cronyism or welfare dependency.

Does this mean that Spencer wrote seemingly hard-hearted things like “widows and orphans should be left to struggle for life and death?” Yes. To Spencer, the laws that categorically try to prevent such suffering would only result in long-term suffering. For those who refuse to help themselves, and for those who persist in patterns of bad, self-destructive behavior, it is true that he thought many should be allowed to die. Again, however, this belief is not as radical as it sounds. Both law and charity can only do so much, and human beneficence can only be stretched so far for those who are unwilling to change their behavior. Ask a social worker how much patience he has for the clients who don’t even seem to be trying, whether they are heroin users or morbidly obese diabetic smokers. “I can only do so much,” the social worker would probably say. But for those willing to change their behavior, or at least to try, Spencer had great sympathy.

He also believed that laws that try to solve suffering merely reorganize the goods of society without solving the underlying problem, namely, the conditions that produce and exacerbate poverty. As he wrote, “If it gives enough to some who else would not have enough, it must inevitably reduce certain others to the condition of not having enough. And thus, to the extent that a poor-law mitigates distress in one place, it unavoidably produces distress in another.”

But Spencer didn’t oppose charity; he simply opposed the type of charity that produces bad behaviors, which gives “pity-inspiring babes the market value of 9d. per day.” Again, here he certainly has a point, and similar concerns led to the Welfare Reform Act of 1996. Spencer was “only against injudicious charity.” In contrast, “to that charity which may be described as helping men help themselves,” he had no objection.

This too is not an uncommon attitude, and one that is certainly not original to Spencer. I imagine Millhiser finds such beliefs abhorrent, but, again, that is merely a disagreement over some aspects of conservatism and libertarianism, not a specific beef with Herbert Spencer. Nor is it strange for Spencer to argue, as Millhiser points out, that profligate and indiscriminate charity can actually increase suffering. Again, you need only to think of those people you have known who were clearly facilitated into self-destructive behavior by indiscriminate charity.

Finally, given that it was recently tax day, Spencer had poignant things to say about how government-provided charity actually diminishes the feelings of sympathy he thought necessary to an advanced society. He was also concerned that voluntary contributions to large, anonymous charitable organizations would also diminish beneficence, although he prefered such organizations to “poor laws.” The best charity, he thought, should be done face to face and not in situations where the “beneficiary is not brought in direct relation with the benefactor.” Millhiser quotes this portion as if it were self-refuting, but the extended passage is actually quite moving and is obviously not the musings of a “genocidal” monster:

In deciding how misery is best alleviated we have to consider, not only what is done for the afflicted, but what is the reactive effect upon those who do it. The relationship that springs up between benefactor and beneficiary is, for the present state of the world, a refining one. Having power to muzzle awhile those propensities of the savage which yet linger in us–corrective as it is of that cold, hard state of feeling in which the every-day business of life is pursued–and drawing closer as it does those links of mutual dependence which keep society together–charity is in its nature essentially civilizing. The emotion accompanying every generous act adds an atom to the fabric of the ideal man. As no cruel thing can be done without character being thrust a degree back toward barbarism, so no kind thing can be done without character being moved a degree forward toward perfection.

But government-enforced charity, wrote Spencer, has the opposite effect:

Watch a rate-payer [tax-payer] when the collector’s name is announced. You shall observe no kindling of the eye at some thought of happiness to be conferred–no relaxing of the mouth as though selfish cares had for the moment been forgotten–no softening of the voice to tell of compassionate emotion: no, none of these; but rather shall you see contracted features, a clouded brow, a sudden disappearance of what habitual kindliness of expression there may be: the tax-paper is glanced over half in fear and half in vexation; there are grumblings about the short time that has elapsed since the last rate; the purse comes slowly from the pocket; every coin is grudgingly parted with; and after the collector (who is treated with bare civility) has made his exit, some little time passes before the usual equanimity is regained. Is there any thing in this to remind us of the virtue which is “twice blessed”? Note again how this act-of-parliament charity perpetually supersedes men’s better sentiments.

After contributing taxes, the “benevolent” taxpayer can walk away with a clean conscience. He might walk past a pauper on the street, Spencer writes, telling him, “I have nothing for you my good man; you must go to your parish.” “Thus does the consciousness that there exists a legal provision for the indigent, act as an opiate to the yearnings of sympathy,” Spencer writes.

He continues:

Had there been no ready-made excuse, the behaviour would probably have been different. Commiseration, pleading for at least an inquiry into the case, would most likely have prevailed; and, in place of an application to the board of guardians, ending in a pittance coldly handed across the pay-table to be thanklessly received, might have commenced a relationship good for both parties–a generosity humanizing to the one, and a succour made doubly valuable to the other by a few words of consolation and encouragement, followed, it may be, by a lift into some self-supporting position.

In truth there could hardly be found a more efficient device for estranging men from each other, and decreasing their fellow-feeling, than this system of state-almsgiving. Being kind by proxy!–could any thing be more blighting to the finer instincts? Here is an institution through which, for a few shillings periodically paid, the citizen may compound for all kindness owing from him to his poorer brothers. Is he troubled with twinges of conscience? Here is an anodyne for him, to be had by subscribing so much in the pound on his rental. Is he indifferent as to the welfare of others? Why then in return for punctual payment of rates he shall have absolution for hardness of heart. Look; here is the advertisement. “Gentlemen’s benevolence done for them, in the most business-like manner, and on the lowest terms. Charity doled out by a patent apparatus, warranted to save all soiling of fingers and offence to the nose. Good works undertaken by contract. Infallible remedies for self-reproach always on hand. Tender feelings kept easy at per annum.”

And thus we have the gentle, softening, elevating intercourse that should be habitually taking place between rich and poor superseded by a cold, hard, lifeless mechanism bound together by dry parchment acts and regulations, managed by commissioners, boards, clerks, and collectors, who perform their respective functions as tasks, and kept a-going by money forcibly taken from all classes indiscriminately. In place of the music breathed by feeling attuned to kind deeds, we have the harsh creaking and jarring of a thing that cannot stir without creating discord–a thing whose every act, from the gathering of its funds to their final distribution, is prolific of grumblings, discontent, anger–a thing that breeds squabbles about authority, disputes as to claims, browbeatings, jealousies, litigations, corruption, trickery, lying, ingratitude–a thing that supplants, and therefore makes dormant, men’s nobler feelings, while it stimulates their baser ones.

Herbert Spencer was a lot of things, but he was not a monster.

It’s hard to prove or disprove statements of broad social sweep, but we do know one thing: Nicholas Nassim Taleb will not defend his assertion that big corporations are “vastly more dangerous” than big governments.

With notable frequency, people assume that I’m a reader of Taleb’s books. Evidently my thinking and his align in important ways. It’s made me mildly interested in reading him, though time constraints (or time mismanagement) have not yet allowed it.

My minor affinity with Taleb caused me to focus just a little more than I otherwise would have on a tweet of his the other day.

Big corporations are vastly more dangerous to the citizenry than big government, but with good news: corps end up committing suicide.

— Nassim NicholنTaleb (@nntaleb) April 15, 2015

That premise really caught my eye. What is the relative danger posed by governments and corporations? Are corporations “vastly more dangerous”?

I’d thought that the jury was pretty much in on that question. With hundreds of millions killed outright by government action in the 20th century alone, the quantum of death and destruction wrought by governments is almost certainly greater than corporations’ destructive work.

Like any tool, corporations are dangerous. Death and injury is a byproduct of their delivery of food, shelter, transportation, entertainment, and every other want and need of consumers, because they often miscalculate risk or just make stupid mistakes.

(I should note that corporations are just a way of organizing people. Their existence isn’t demanded by any principle, and they arguably violate libertarian principle by acting as government transfer of risk from owners to consumers. But by historical accident they do exist, and they are an organizational conduit through which much productive human action passes.)

Governments are dangerous, too, to the point where it sometimes appears that unpleasant byproducts are the intended product. According to liberal theory, we enter into political society for protection from each other and outsiders. The day-to-day operation of government in the United States is pretty good relative to other countries and other historical eras. But Americans today are caged in droves and killed with regularity as a byproduct of the war on drugs, for example. People around the world are episodically slaughtered in the millions by literal wars entered into by governments.

Is there any comparable danger produced by corporations?

There are ways of attributing the acts of governments to corporations. The lamentable military-industrial complex is responsible for a vastly greater war-making machine than our society needs, I think. That’s just an extreme example of crony capitalism. But an essential condition of such violent potential and actual violence is government. Corporations cannot and do not tax, conscript, and kill under claim of legal authority to do so. Only governments do that. That’s somewhat definitional, and in practice I think it’s nearly beyond dispute that governments are the more dangerous for it.

It could be that Taleb is thinking in terms of a stylized sense of “danger” rather than literal risk of mortality and morbidity. So I was being genuine when I tweeted:

Can’t fathom how @nntaleb concludes “Big corporations are vastly more dangerous to the citizenry than big government.”

— Jim Harper (@Jim_Harper) April 15, 2015

Taleb responded by calling me a lover of big corporations, dishonest, and a lobbyist/prostitute. I have personal foibles, though I think they’re different from the ones in Taleb’s catalog, but my character issues reveal nothing about the relative danger posed by corporations and governments. The question is important because it implies which institution we should more urgently seek to fetter for purposes of public protection.

The good evidence about the danger of governments is not an argument that they don’t supply some benefits. The utter absence of evidence that corporations are more dangerous leaves as an ineluctable conclusion, I think, that governments are the more dangerous of the two social institutions.

In light of “libertarianish” Sen. Rand Paul’s recently announced candidacy for president, the New York Times’ Paul Krugman veered into public opinion to make a bold claim that most Americans are either liberal or conservative and little else.

He explains that in theory there could be more than simply liberals and conservatives. For instance, if political attitudes were structured along multiple dimensions like along economics and social issues, that would produce at least four different ideological groups:

  • Liberals (economically and socially liberal)
  • Conservatives (economically and socially conservative)
  • Libertarians (socially liberal and economically conservative)
  • “Hard hats” or communitarians (socially conservative and economically liberal)

Yet, without referencing data, he asserts that in practice few people exist in the libertarian or “hard hat” (or communitarian) boxes. His graphic is pasted below:

Is Krugman’s estimate accurate? A growing body of literature overwhelmingly suggests that it isn’t. (For instance see here, here, here, here, here, also see here, among others.)

For this reason, it’s not surprising that statisticians and academics used survey data in response to Krugman to demonstrate that Americans are more complicated than just red and blue. For instance, Nate Silver at FiveThirtyEight cross-tabs support for wealth redistribution and same-sex marriage to show about a quarter of Americans fit in the libertarian box: oppose income redistribution and support marriage equality.

However, one could argue that by this definition, based on only these two questions, Paul (who indirectly instigated this debate) may not even be categorized in the “libertarian” box.

Perhaps a more precise way to measure this is to use multiple issue questions to derive a measure of each person’s ideology on economic issues, and multiple questions to estimate their ideology on social issues, and then use their scores as coordinates to map them across the four quadrants.

Figure 1 uses survey data from the American National Election Study Evaluations of Government and Society Survey 2 (EGSS 2). I average responses to several questions about economics to create an “economic issues scale” scaled from liberal to conservative. Similarly, I use questions about immigration and religion for a “social issues scale” scaled from liberal to conservative. (All question wording is found in the footnotes below.) Thus, each respondent is assigned an “economics” and “social” ideology score used to map their ideological coordinates and placement in one of the four boxes.

Figure 1 reveals a complicated electorate with 19 percent in the libertarian bucket (economically conservative and socially liberal) and 20 percent in the “hard hat” box (economically liberal and social conservative). This is a far cry from Krugman’s estimate of “basically empty” boxes.

Where Do The People Live, Politically Speaking?

Figure 1

Note: ANES 2012 EGSS 2, each dot represents an individual respondent. The Social Issues Scale is coded left to right, liberal to conservative. The Economics Issue Scale is coded bottom to top, liberal to conservative.

These measures also find that 31 percent conform to traditional conservative and 30 percent to traditional liberal issues positions on both economic and social issues respectively.

What’s helpful about these graphs is that we can map out spatially where Americans are politically relative to each other. We can notice that Americans are not grouped together as pundits may believe and politicians may desire.

Results are not limited to just these particular questions. I replicate these general findings by plotting ideology on criminal justice reform issues versus economic ideology and then again with race issues versus economic ideology, using data from the Reason-Rupe/Princeton October 2014 national survey.

Notably, the share of libertarians and “hard-hats” is contingent upon the questions asked.

Figure 2 plots the ideological coordinates for individual survey respondents based on their answers to economic issues questions (y-axis) and criminal justice reform issues (x-axis). In fact, the criminal justice questions map onto issues differentiating Paul from other Republican presidential contenders. These variables include support for allowing nonviolent offenders to petition to have their court records sealed, perception of racial bias in the criminal justice system, and support/opposition to racial profiling. (Question wordings found in footnotes.)

Once again, the libertarian and “hard hat” buckets are quite full. Some 24 percent are in the libertarian bucket because respondents give “liberal” responses to criminal justice reform questions and conservative responses to economic questions. Another 15 percent are in the “hard hat” bucket because they expressed more conservative opinions on criminal justice issues and liberal views on fiscal issues. Another 33 percent were in the traditional liberal and 28 percent in the conservative buckets.

Criminal Justice Reform by Economic Issues

Figure 2

Note: Reason/Princeton October 2014, each dot represents an individual respondent.

Figure 3 maps ideology using answers to questions on economics and racial issues. The results: liberal, 33%; conservative, 33%; libertarian, 19%; communitarian, 15%. (Question wordings in footnote.)

Racial Issues by Economic Issues

Figure 3

Note: Reason/Princeton October 2014, each dot represents an individual respondent.

So what about traditional partisan groups? Where do they “live” in the political map? I map this in Figure 4. As expected, Republicans are more likely to cluster in the upper right, traditionally conservative quadrant, and Democrats in the lower left, traditionally liberal quadrant. Independents are fairly evenly distributed but slightly more represented in the hard hat and libertarian boxes.

Where Do the Republicans and Democrats Live?

Figure 4

Note: ANES EGSS 2 2012 Survey, Red dots indicate Republican respondents (LEFT), Blue dotes indicate Democratic respondents (RIGHT).

Like partisans, organized groups tend to come from the traditional liberal and conservative quadrants. For instance, labor unionists and members of environmental, women’s and LGBT rights groups and antiwar activists disproportionately come from the traditional liberal quadrant. Born-again Christians are disproportionately found in the traditional conservative and hard-hat buckets. Gun owners are found primarily in the conservative quadrant. Tea Partiers are found mostly in the conservative quadrant but also in the libertarian box.

This offers some insight as to why pundits tend to overlook the libertarian and hard hat boxes. Few groups seem to mobilize the libertarian and hard hat voters. Moreover, these Americans are somewhat less likely to vote and engage politically. Nearly equal shares of traditional liberals (72%) and conservatives (73%) said they were 100% likely to vote in the 2012 election, compared to 67 percent of libertarians and only 48 percent of hard hats.

When examining these groups’ other political activity, traditional liberals; (42%) were the most likely to have engaged in the 2012 election by calling an elected official, donating money or time to a campaign or cause, etc. However, only 22 percent of hard-hats did the same. Conservatives and libertarians were in the middle with about 3 in 10 engaging politically in 2012.

As some have said, “the world is run by those who show up.” Similarly, government goes to those who show up, and we pay attention to those who mobilize and engage. At the moment, hard hats and libertarians are often less likely to engage, mobilize, and vote, and thus perhaps more easily overlooked.

One will notice that the non-traditional Republican candidate Paul does the best (as does Jeb Bush) compared to their traditional Republican rivals in hypothetical matchups with Democratic frontrunner Hillary Clinton. Is Paul cutting into Clinton’s base? Or is he demonstrating an ability to mobilize new voters to his advantage? What about Bush? We’ll need more data to answer those questions.

Thinking beyond 2016, it stands to reason that candidates who choose to ignore hardhats and libertarians are at a disadvantage. Instead, candidates who seek to build larger coalitions outside of the traditional Democratic and Republican bases by appealing to libertarian and hardhat voters may find additional success.


American National Election Study Evaluations of Government and Society Survey 2, 2012


Do you think that the government should provide more services than it does now, fewer services than it does now, or about the same number of services as it does now? How important is it to reduce the deficit? (Extremely important, very important, moderately important, a little important, or not important at all.) Different ways of handling the deficit have been considered. Which one of these do you prefer? (Do not reduce, tax increases only, spending cuts only, spending cuts & tax increases.) With the deficit in mind, do you favor raising, lowering, or keeping the same taxes for people who make more than $250,000 per year? Households with the highest 20% of incomes earn an average of 14.9 times as much money as households in the bottom 20%. Should this difference be larger, smaller, or about the same as it is now? Some people feel that the government in Washington should see to it that every person has a job and a good standard of living; Others think the government should just let each person get ahead on their own. Where would you place yourself on this scale? Do you think estates should not be taxed at all, only estates worth more than $5 million should be taxed, only estimates worth more than $1 million should be taxed, all estates should be taxed


Which comes closest to your view about what government policy should be toward unauthorized immigrants now living in the United States? Should the government (1) make all unauthorized immigrants felons and send them back to their home country? (2) have a guest worker program that allows unauthorized immigrants to remain in the United States in order to work, but only for a limited amount of time? (3) allow unauthorized immigrants to remain in the United States and eventually qualify for U.S. citizenship, but only if they meet certain requirements like paying back taxes and fines, learning English, and passing background checks, or (4) allow unauthorized immigrants to remain in the United States and eventually qualify for U. S. citizenship, without penalties?

Which of these statements comes closest to your feelings about the (Bible/Torah/Holy Scripture)? (1) The (Bible/Torah/Holy Scripture) is the actual word of God and is to be taken literally, word for word. (2) The (Bible/Torah/Holy Scripture) is the word of God but not everything in it should be taken literally, word for word. (3) The (Bible/Torah/Holy Scripture) is a book written by people and is not the word of God.

Reason Foundation-Rupe Foundation/Princeton 2014

Race Issues

It has been reported that some police officers stop motorists or pedestrians of certain racial or ethnic groups because the officers believe that these groups are more likely than others to commit certain types of crimes. Do you approve or disapprove of this practice by the police? In recent years, do you think too much has been made of the problems facing black people, too little has been made, or is it about right? Just your impression: do you think the criminal justice system in the United States (1) treats white Americans more fairly than black and Hispanic Americans, (2) treats black and Hispanic Americans more fairly than white Americans, or (3) are they treated about the same?

Criminal Justice and Racial Equality

It has been reported that some police officers stop motorists or pedestrians of certain racial or ethnic groups because the officers believe that these groups are more likely than others to commit certain types of crimes. Do you approve or disapprove of this practice by the police? Do you favor or oppose allowing nonviolent drug offenders who have served their sentences to petition a court to have their court records sealed, making them inaccessible to the public without a court order? Just your impression: do you think the criminal justice system in the United States (1) treats white Americans more fairly than black and Hispanic Americans) (2) treats black and Hispanic Americans more fairly than white Americans, or (3) are they treated about the same?


Looking back now on the 2008 financial crisis… Do you think the government definitely did the right thing, probably did the right thing, probably did the wrong thing, or definitely did the wrong thing? As you may know, the U.S. has one of the highest corporate income tax rates among industrialized countries. Do you favor raising U.S. corporate tax rates, keeping U.S. corporate tax rates where they are now, lowering U.S. corporate tax rates to match those of other industrialized countries, or lowering U.S. corporate tax rates below those of other industrialized countries? If you had to choose, would you rather have a smaller government providing fewer services, or a larger government providing more services? As I read the following pairs of statements, please tell me which comes closer to your own opinion: we need a strong government to handle today’s complex economic problems; or, people would be better able to handle today’s problems within a free market with less government involvement.

The Government Accountability Office (GAO) releases an annual report on government duplication, fragmentation, and overlap. Since 2011 GAO has highlighted 440 different actions that Congress and the president could take to reduce this wasteful spending. This week, GAO released its updated report and included an additional 66 actions.

Here is a sample of items from this year’s report:

  • Consumer Product Safety Overlap. GAO found that more than 20 federal agencies are involved with the oversight of consumer products. For example, the Consumer Product Safety Commission is responsible for overseeing the safety of children’s toys, but the National Institute of Standards and Technologies oversees toy guns. GAO noted that the current structure does not “leverage each agency’s expertise and therefore may not be the most efficient use of scarce federal resources.”
  • Nonemergency Medical Transportation. GAO found 42 programs within the federal government that provide nonemergency medical transportation. These programs focus on enrollees who are unable to provide their own transportation because of age, income, or disability. GAO noted that many of these programs target “similar beneficiaries … and engage in similar activities.” It noted that a coordination council was created to eliminate some of these issues, but the council hasn’t met since 2008. “Without proper controls, cost or ride sharing with other non-Medicaid programs could allow for improper payments for individuals who do not qualify for Medicaid,” GAO reported.
  • Serious Mental Illness. Eight federal agencies, overseeing more than 100 programs, support individuals with serious mental illness, with 30 of those programs “specifically targeting individuals with serious mental illness.” GAO estimated that the 30 programs spent $6 billion in fiscal year 2013. While rules are in place requiring the programs to coordinate their activities, GAO said that coordination was “largely absent.”

Aside from wasting money, this “fragmentation can result in unclear roles,” reports the GAO:

Although it may be appropriate for multiple agencies or entities to be involved in the same programmatic or policy area due to the nature or magnitude of the federal effort, the instances of fragmentation, overlap, or duplication we describe … occur in areas where multiple programs and activities may be creating inefficiencies.

Even with GAO’s long-time spotlight on these issues, Congress and the president are slow to fix problems. Of the 440 previous recommendations highlighted by GAO, only 37 percent have been fully addressed, and a full 20 percent have not been addressed at all.

As Congress and the president seek to set spending levels for next year, the GAO recommendations offer straightforward ways to cut and reprioritize spending.

Jason Bedrick

Today, the left-wing Center for Tax and Budget Accountability (CTBA) released a misleading report on school choice programs in Indiana and elsewhere. Among its key findings include the following claims:

  • None of the independent studies performed of the most lauded and long standing voucher programs extant in the U.S.—Milwaukee, Wisconsin; Cleveland, Ohio; and Washington, D.C.—found any statistical evidence that children who utilized vouchers performed better than children who did not and remained in public schools.
  • According to the annual financial report of the Indiana Department of Education, Indiana spent $115 million on its voucher program in the 2014-2015 school year. In context, that means over $115 million of public, taxpayer money annually will be diverted from … the state’s public school system, and instead used to subsidize students attending private schools.

Both claims, while they contain elements of truth, are highly misleading.

Evidence for the Effectiveness of School Choice

To support its claim regarding the supposed lack of evidence for the success of school choice programs, CBTA points to a few studies of school voucher programs.

First, CTBA cites a longitudinal study of Milwaukee’s voucher program by researchers at the University of Arkansas, claiming that voucher students in grades 3-8 “performed statistically similar” to a matched group of district-school peers on standardized tests. Oddly, CTBA relies on the 2008-2009 findings, published in 2010, rather than the most recent 2012 report. In fact, as the study’s coauthor, Dr. Patrick Wolf, explains, the study found “school choice in Milwaukee has had a modest but clearly positive effect on student outcomes.”

First, students participating in the Milwaukee Parental Choice (“voucher”) Program graduated from high school and both enrolled and persisted in four-year colleges at rates that were four to seven percentage points higher than a carefully matched set of students in Milwaukee Public Schools. Using the most conservative 4% voucher advantage from our study, that means that the 801 students in ninth grade in the voucher program in 2006 included 32 extra graduates who wouldn’t have completed high school and gone to college if they had instead been required to attend MPS.

Second, the addition of a high-stakes accountability testing requirement to the voucher program in 2010 resulted in a solid increase in voucher student test scores, leaving the voucher students with significantly higher achievement gains in reading than their matched MPS peers.

In the final year of the study, voucher students in grades 3-9 performed about 15 percent of a standard deviation higher on standardized reading tests, “a modest but meaningful educational difference.” The achievement growth in math was not statistically significant relative to the achievement growth of the matched district-school students, but the study concluded that Milkwaukee district-school students were “performing at somewhat higher levels as a result of competitive pressure from the school voucher program.” And because the vouchers were worth about half of the cost per-pupil at the district schools, the study found that the voucher program saved the state nearly $52 million in fiscal year 2011.

The CTBA report ignores entirely previous research from the Brookings Institution, a random-assignment study–the gold standard of social science research–that found voucher students in Milwaukee scored six Normal Curve Equivalent points higher than the control group in reading and 11 points higher in math.

CTBA also claims that the U.S. Department of Education’s study of Washington D.C.’s school voucher program “found no signfiicant difference between the performance of voucher and non-voucher students in reading and math.” That is technically true at the 95 percent confidence interval, though there were positive findings for reading scores at the 90 percent confidence interval. Moreover, students offered vouchers graduated at a rate 12 percentage points higher than the control group, 82 percent to 70 percent respectively.

To reach its conclusion, the CTBA report completely ignores numerous other gold standard studies from respected researchers at Harvard, Princeton, the University of Chicago, the Brookings Institution, and elsewhere. For CTBA’s benefit, here is a sampling:

  • William G. Howell and Paul E. Peterson, The Education Gap: Vouchers and Urban Schools, Brookings Institution, 2002, revised 2006. – After two years, African-American voucher students had combined reading and math scores 6.5 percentile points higher than the control group.
  • Jay P. Greene, “Vouchers in Charlotte,” Education Next, Summer 2001. – After one year, voucher students had combined reading and math scores 6 percentile points higher than the control group.

As I noted recently, none of these findings are earth shattering, but each study found a statistically significant positive outcome overall or for certain subgroups, particularly low-income African-Americans who are currently the most choice-deprived.

Evidence of Savings from School Choice

By claiming that Indiana’s school voucher program cost the state $115 million in 2014-15, CTBA completely ignores the savings generated from reduced expenditures on district schools. The average cost per-pupil in Indiana’s district schools in north of $10,400, whereas the average voucher is worth less than $4,000. Indiana’s base per-pupil funding amount is about $4,600, and the state gives district schools more than $6,000 for low-income students, as well as additional funds for other categories of students (e.g. - students in special needs programs, academic honors programs, career and technical training programs, etc.), so the state saves money each time a student switches out of a district school to accept a voucher. CTBA does not even acknowledge this fact when discussing the fiscal impact to the state, let alone estimate the true fiscal impact.

Likewise, in its discussion of the fiscal impact of Indiana’s scholarship tax credit law, CTBA focuses solely on the reduction in revenue with nary a mention of the corresponding reduction in expenses. The average scholarship is worth barely $1,000, so every student who switches out of a district school to accept a scholarship saves the state a lot of money. In a forthcoming report for the Friedman Foundation for Educational Choice, using highly conservative assumptions, I calculated that the Indiana School Scholarship Tax Credit saved the state approximately $23.2 million in 2014-15.

However, CTBA does try to have its cake and eat it too. While the CTBA report never mentions the reduction in state allocations to district schools resulting from vouchers or scholarships in its discussion of the impact on state spending, it does include a section lamenting the loss of revenue to the district schools. Unsurprisingly, there is no discussion of the reduced costs associated with the reduction in student enrollment.

The CTBA report’s central claims are highly misleading. Policymakers should bury them under a truckload of New England road salt.

Neal McCluskey

There’s a lot of debate right now about whether conservatives (I don’t know if anyone thinks libertarians can be reached) should support current No Child Left Behind reauthorization efforts. The “support this” argument is that bills in the House and Senate are not ideal because they would keep a major federal role in education, but they would end many bad things in NCLB and conservatives should take what they can get politically. But we just got a terrific illustration of what happens when you cut off just a few jellyfish tentacles: they grow back.

Yesterday, an amendment was passed in the markup of the Senate bill that would restore the 21st Century Community Learning Centers program. What is the 21st CCLC? A Clinton Era program that furnishes funds – $1.2 billion in FY 2015 – for before- and after-school activities and summer programs. The problem: It appears to be a failure. As I discussed a few years ago, federal studies of the program found it not only largely ineffectual, but possibly even a negative influence. As a 2005 report summarized:

Conclusions: This study finds that elementary students who were randomly assigned to attend the 21st Century Community Learning Centers after-school program were more likely to feel safe after school, no more likely to have higher academic achievement, no less likely to be in self-care, more likely to engage in some negative behaviors, and experience mixed effects on developmental outcomes relative to students who were not randomly assigned to attend the centers.

It isn’t just Cato folk who’ve stumbled on the research. The Brookings Institutions’ Mark Dynarski just laid into the 21st CCLC last month, writing that evaluations “reported on how the program affected outcomes. In a series of reports released between 2003 and 2005…the answers emerged: the program didn’t affect student outcomes. Except for student behavior, which got worse.”

In light of the evidence, why has the 21st CCLC likely been spared in the Senate? Almost certainly because it sounds nice – who doesn’t like after-school enrichment? – and because the vast majority of voters don’t have time to research it and discover that the federal government’s own evaluations have found it wanting. And, of course, people getting money through the program likely lobbied hard to keep it. In other words, we’re almost certainly looking at classic concentrated benefits and diffuse costs: For voters and taxpayers, the 21st CCLC is but one among umpteen thousand government programs they could never keep track of and which, on an individual taxpayer basis, costs little. In contrast, for politicians sending an “I care” message, and for those getting money or services through the program, it means much more so they fight to keep it.

This is a major reason it is essential to keep the goal of removing Washington from education squarely in view at all times. Fail to eliminate it completely – to make going to Washington for education cash nearly impossible – and bad programs will be kept, many that seem gone will grow back, and new ones will emerge.

If you don’t want to get stung by the jellyfish, you can’t just cut a few tentacles.

K. William Watson

In Tuesday’s New York Times, law professor Margot Kaminski laid out a compelling case for increased transparency in the Trans-Pacific Partnership negotiations.  On Wednesday, John Murphy of the U.S. Chamber of Commerce offered a fairly convincing response in defense of confidentiality.  The problem is that—as is common in trade policy “debates”—they’re not talking about the same thing.  That’s frustrating to me because I think they’re both right.

Kaminski makes the point that the U.S. Trade Representative has been overbroad in what it deems classified material, that the current approach improperly privileges business lobbying over public interest groups, and that as negotiations cover more non-trade issues negotiators need more exposure and guidance from different people.

Murphy responds by noting that trade agreements are successfully increasing U.S. exports, that confidentiality in negotiations is both appropriate and helpful in achieving this outcome, and that systems are in place to ensure that all interested parties have input. 

Murphy’s concern is that “public disclosure of confidential negotiating texts would mean a weaker hand for U.S. officials at the negotiating table.”  For Kaminski, “it’s a question of whose input we’re getting on decisions that reach far beyond trade — into questions on the price of generic drugs or whether websites will have to monitor users online.”

Murphy is right about the value of confidentiality.  Trade negotiations are negotiations, which means the final agreement is the result of some necessary compromise.  Compromise is politically difficult, and negotiators need to know that they’ll be evaluated on the final product regardless of their initial positions.  In any event, we don’t know what’s in the agreement until it’s completed, and there will indeed be time after the negotiations conclude to debate the package.  Murphy’s also justified in being generally defensive about secrecy complaints, which often simply mask general antipathy toward trade liberalization.

But none of this really refutes Kaminski’s main argument.  To stretch the metaphor, she’s not calling for negotiators to show our playbook to the other team, she’s trying to make sure that the negotiators are actually on our team in the first place.

If trade agreements are simply about reducing protectionist policies like tariffs, quotas, and subsidies, then it makes perfect sense to give trade negotiators the leeway needed to reach the best deal.  The only policy question is whether free trade is good.  But today’s agreements, like the TPP, also cover other issues—issues where there is significant disagreement within the United States and where more isn’t always better. 

In particular, the TPP is going to set international intellectual property laws subject to enforcement through trade sanctions.  The TPP may also set international rules on minimum wage, maximum hours, and worker safety.  It may criminalize certain kinds of wildlife trade and fishing practices

U.S. trade negotiators are pushing these provisions without adequate input from domestic civil society.  The bias toward export-oriented business interests is making trade agreements economically less valuable and politically less viable.  In essence, the U.S. Trade Representative is using confidentiality to avoid engaging with the public on these issues, and that needs to change.

One way to do that, however, is through a legislative process that Kaminski specifically condemns—trade promotion authority.  Trade promotion authority gives Congress an opportunity to debate and establish the U.S. trade agenda through specific negotiating objectives.  Instead of opposing trade promotion authority, groups concerned about the goals of U.S. negotiators should work to set the right negotiating objectives.  They can even use trade promotion authority to impose specific demands for enhanced participation from public interest groups.

As long as trade agreements are being used to set regulatory policies, reasonable complaints about democratic legitimacy will be part of the debate.  So unless proponents are willing to accept a cleaner trade agenda focused more squarely on reducing protectionism, they will need to accept some form of increased scrutiny and broader participation in negotiations.

Daniel J. Ikenson

The eyes of the international trade community are fixed on Senators Orrin Hatch (R-UT) and Ron Wyden (D-OR), upon whom responsibility for crafting bipartisan Trade Promotion Authority (TPA) legislation has fallen. At last report, Senate Finance Committee Chairman Hatch and Ranking Member Wyden were at an impasse over some important components of the bill, passage of which is widely considered necessary to concluding the long-gestating, 12-nation Trans-Pacific Partnership (TPP) agreement. That agreement must be concluded before the Transatlantic Trade and Investment Partnership (TTIP) negotiations make any progress. Those negotiations will have far-reaching implications for the multilateral trading system, including China, India, Brazil and other countries not currently party to these mega-regional trade agreements. Hence, TPA’s outcome is of worldwide interest.

Trade Promotion Authority has been maligned as a congressional capitulation or executive power grab.  It is neither. The U.S. Constitution grants Congress the authority to “regulate commerce with foreign nations” and to “lay and collect taxes, duties, imposts, and excises” and grants the president power to make treaties with the advice and consent of the Senate. Accordingly, the formulation, negotiation, and implementation of trade agreements require the involvement and cooperation of both branches. TPA is a compact between the branches that obliges these respective constitutional authorities, while guaranteeing an up-or-down vote by Congress, on an expedited basis, of any trade agreement negotiated by the executive branch with foreign governments, provided that the agreements meet the objectives spelled-out by Congress in the legislation. This conditionality is often ignored or brushed over by news reporters, who either spend too much time with trade skeptics or who are looking to economize on words.

Without such a compact, trade agreements would be nearly impossible to conclude because foreign negotiators – knowing that any agreement reached would be subject to congressional revisions – would never put their best offers on the table.  The process of negotiating and renegotiating with 535 officials (instead of one agency, the Office of the U.S. Trade Representative) would make for an interminable process too cumbersome and costly to pursue.  For practical purposes, negotiations have to occur between small parties vested with the authority to speak on behalf of those whom they represent. Trade Promotion Authority is the solution.

But one important consideration that created the impasse between Hatch and Wyden concerned the process of holding the president to account.  The compact is intended to grant negotiating authority to the president – including expedited procedures that lead to an up-or-down vote within a certain number of calendar days – in exchange for the president’s commitment to negotiate on behalf of Congress by honoring a list of congressional objectives. The question is: how should Congress verify that the president satisfied his obligation to honor their objectives before proceeding with expedited congressional consideration?

Under previous TPA legislation, Congress was afforded opportunities to offer “Resolutions of Disapproval” over procedural concerns, including whether the trade deal advanced the objectives of Congress. Such resolutions were required to be reported to and approved by the respective trade committees in each chamber. That process would seem sufficient, given that most congressional action is funneled through committees with chairs and ranking members holding sway. Senator Wyden’s view, however, was that it should be easier to strip an agreement of “fast track” treatment, perhaps by allowing for more channels through which such “resolutions” could come to the floor for a vote and requiring 60, as opposed to 67, votes in the Senate to pass the resolution.  Wyden also seemed to favor affirmative “certification” that an agreement comports with congressional objectives, as opposed to requiring passage of a resolution that it doesn’t comport – an idea which Hatch equated to effectively requiring a second TPA vote.

Well, as of a few hours ago, various media were reporting that a deal had been struck and that Wyden agreed that the fast track “circuit breaker” would still require a resolution of disapproval to pass, but that the threshold number of votes would be 60, not 67.  That sounds like a reasonable compromise struck by senators who want TPA legislation to pass.

Of course, procedures for taking agreements off the fast track in the House will be different – presumably a resolution of disapproval channeled through Ways and Means Chairman Paul Ryan, which would require 218 votes.  But articulating those procedures and ensuring that the TPP and other trade agreements abide Congress’s wishes will square the constitutional circle with Trade Promotion Authority, and preserve the right of each member of Congress to vote “yea” or “nay” on the TPP.

Matthew Feeney

In David Brooks’ latest New York Times column he explains that he is now a proponent of police body cameras, but adds that he did not come to his position “happily.” According to Brooks, the debate over police body cameras has revealed that an increasing number of people have lost “the language of privacy” and “an understanding of why privacy is important.”

It’s refreshing to read that Brooks does have concerns related to privacy. After all, Brooks said last June that the NSA’s snooping isn’t “particularly intrusive.”  But the rise of police body cameras is prompting a sensible conversation about privacy and why it is important.

Given the nature of their work, police officers regularly witness members of the public experience tragic and embarrassing moments, many times on private property. Police officers are often among the first at the scene of auto accidents or other life-threatening emergencies. They also talk to informants as well as victims of sexual and domestic abuse. In addition to sometimes entering private homes, police officers also occasionally visit hospitals and schools.

Brooks discusses some of the legitimate privacy concerns these kind of situations raise towards the end of his column:

When a police officer comes into your home wearing a camera, he’s trampling on the privacy that makes a home a home. He’s recording people on what could be the worst day of their lives, and inhibiting their ability to lean on the officer for care and support.

Cop-cams insult individual dignity because the embarrassing things recorded by them will inevitably get swapped around. The videos of the naked crime victim, the berserk drunk, the screaming maniac will inevitably get posted online — as they are already. With each leak, culture gets a little coarser. The rules designed to keep the videos out of public view will inevitably be eroded and bent.

Even the most committed advocate of police transparency and accountability must concede that the unedited release of all police body camera footage could lead to devastating infringements on a citizens’ privacy and potentially compromise ongoing investigations. A sensible police body camera policy will exempt some footage from public release. If a police officer arrives at the scene of a fatal auto accident, interviews a young victim of sexual assault, or gives a presentation in an elementary school there are serious privacy concerns that police body camera policies ought to address.

But, as should not come as a surprise, civil liberty advocates, lawmakers, and policing research organizations have written about these privacy concerns and when a police officer with a body camera should turn the device on.

In a paper written by the Police Executive Research Forum (PERF), with support from the Department of Justice’s Office of Community Oriented Policing Services, the authors recommend that recordings of conversations with informants and undercover officers be prohibited. The paper also recommends that recordings be prohibited in areas such as bathrooms where there is an expectation of privacy and that police officers be required to inform members of the public if they are on camera. In addition, the paper recommends that officers be required, regardless of state law, to obtain consent from crime victims before interviews are recorded.

ACLU senior policy analyst Jay Stanley wrote a white paper on what policies ought to be included when crafting rules for police body cameras. In the paper, Stanley correctly writes that the public disclosure of police body camera footage pits “two important values against each other: the need for government oversight and openness, and privacy.” Stanley argues that videos subject to public record requests should be redacted in order to protect privacy. Stanley has also written on police body cameras in schools.

Stanley’s ACLU colleague Scott Greenwood is quoted in the PERF paper saying:

An officer might be allowed to go into the residence and record, but that does not mean that everything inside ought to be public record. The warrant is an exception to the Fourth Amendment, not a waiver. We do not want this to show up on YouTube. My next-door neighbor should never be able to view something that happened inside my house without my permission.

Greenwood is also quoted recommending that the ACLU and police executive work “to ensure that state disclosure laws contain adequate privacy protections for body-worn camera videos.”

Indeed, some state lawmakers have introduced legislation, such as Michigan’s HB 4234 and Florida’s SB 248, which seek to limit the releas of police body camera footage captured inside a citizen’s home. Florida’s SB 248 would also limit the release of footage captured within “health care, mental health care, or social services” facilities as well as “at the scene of a medical emergency involving a death or involving an injury that requires transport to a medical facility.”

State lawmakers, civil liberty advocates, as well as researchers with a focus on law enforcement have all contributed to the conversation that has naturally arisen amid the increased use of police body cameras. It seems to me that police body cameras have kept the “language of privacy” alive and well.

Of course, Brooks isn’t only concerned with the potential privacy violations that could occur when a police officer with a body camera enters a home. He is more broadly concerned that an increasing number of people don’t understand why privacy is important.

Brooks writes:

Putting a camera on someone is a sign that you don’t trust him, or he doesn’t trust you. When a police officer is wearing a camera, the contact between an officer and a civilian is less likely to be like intimate friendship and more likely to be oppositional and transactional.

I can’t speak for all readers, but I would be less likely to be antagonistic during an encounter with a police officer who was wearing a body camera. Indeed, there is some evidence to suggest that officers wearing body cameras can contribute to a reduction in police use-of-force incidents and complaints against police officers.

Brooks is right when he says the following:

Privacy is important to the development of full individuals because there has to be an interior zone within each person that other people don’t see. There has to be a zone where half-formed thoughts and delicate emotions can grow and evolve, without being exposed to the harsh glare of public judgment. There has to be a place where you can be free to develop ideas and convictions away from the pressure to conform. There has to be a spot where you are only yourself and can define yourself.

But it is Brooks’ not “particularly intrusive” NSA, rather than police body cameras, which risks compromising the zone in which citizens explore unpopular ideas and their “half-formed thoughts and delicate emotions.”

Police body cameras do raise a host of legitimate privacy concerns. But police body cameras are often used to record encounters that occur in public where, given the state of modern technology, none of use can reasonably expect the degree of privacy that, perhaps, we might otherwise like. The police encounters that take place inside private residences and inside hospitals and schools are being considered in ongoing conservations on body cameras, where the language of privacy is often heard.

Doug Bandow

Washington’s actions abroad affect the size and power of Washington at home. “War is the health of the state,” declared social critic Randolph Bourne.

The more active America’s foreign policy, the more the United States has to spend on the military: the “defense” budget is the price of Washington’s foreign policy. American military personnel and contractors die. Enemies are created, some of whom become terrorists. A national security state develops.

Thus, Americans committed to limited government and individual liberty should support a foreign policy based on humility and restraint. An imperial foreign policy like that today inevitably inflates–indeed, requires–a Leviathan state.

Nor should anyone who understands government believe the American state to be capable of competently fulfilling more expansive foreign policy objectives. At times, war is an unfortunate necessity and government must rain down death and destruction on other peoples.

Far more often, however, policymakers turn the military into just another government tool intended to achieve complicated ends that often aren’t even important, let alone vital. Attempts at so-called humanitarian intervention and nation-building, for instance, almost always turn out badly, even disastrously.

Yet domestic warrior wannabes often are not alone in promoting America’s warfare state. So do foreign classical liberals who campaign in their home countries for limits on state power. While promoting smaller governments, many of these intellectuals and activists expect the American state, or at least the Pentagon, to be large to defend their nations.

This sentiment has grown particularly pronounced with the rise of Russia’s Vladimir Putin. A number “liberals” (as Europeans typically call what Americans are more likely to term “libertarians”) in those countries believe it is America’s job to protect their nations.

Some appear almost mystified when their ideological compatriots in the United States object. As I point out in the National Interest: “For an American classical liberal, confronting a nuclear-armed power over issues which the latter views as vital but which matter little to America would be foolish, even improper, a violation of the federal government’s responsibility to the “common defense”—of this nation and its people.”

Foreign policy, which ultimately controls use of the military, is uniquely national, practical, and circumstantial. First, foreign policies of nations naturally will differ since states’ interests vary. Second, foreign policy is eminently practical since ideology cannot determine what actually will succeed in effecting a particular end. Third, foreign policy is circumstantial, depending on the particular facts and may change over time.

Taking these factors into account, Washington should act on behalf of the American people. The fact that Moscow, for instance, is beating up on Georgia or Ukraine matters in a geopolitical sense insofar as those actions may threaten the United States. But they don’t.

There is much bad in the world, but most of it has little impact on America. Initiating hostilities against a nuclear-armed power sensitive to its borders would create far more geopolitical dangers than it would resolve.

Obviously, there are humanitarian issues of concern to all, but they usually offer a terrible justification for intervention and war. Loosing the dogs of war almost always results in costly and deadly unintended consequences. The debacle in Iraq demonstrated how initiating war allegedly to do good was a costly means of doing much bad.

Of course, as has often been pointed out, the early Americans sought foreign military assistance in their revolt against Great Britain from imperial France. And there’s nothing wrong with liberals in other nations hoping for Washington to put their homelands’ interests before that of Americans. But that’s no reason for U.S. policymakers to do so.

Many modern American conservatives favor war as a matter of principle. Today these conservatives often join with foreign liberals who want the United States to act as bodyguard for their nations.

However, while the world is a messy place, most of the problems don’t much matter to the United States. Rather, they won’t so long as Washington does not make every other nations’ conflict America’s own.

Nicole Kaeding

Today is Tax Day. Federal tax returns are due to the Internal Revenue Service with a postmark before midnight. The Congressional Budget Office (CBO) projects that the federal government will collect $3.2 trillion in revenue this year.

Revenue comes from five main sources:

  • Individual Income Taxes ($1.5 trillion). The largest source of federal revenues, individual income taxes are imposed on labor and capital income, with statutory rates that vary from 10 to 39.6 percent.
  • Payroll Taxes ($1.1 trillion). These taxes finance Social Security and Medicare. Employees and employers split the 15.3 percent tax assessed on wages, but economists agree that the entire burden ultimately lands on workers in the form of lower wages.
  • Corporate Income Taxes ($328 billion). These taxes are assessed on the worldwide earnings of corporations.
  • Excise Taxes ($96 billion). Excise taxes are consumption taxes on specific goods. At the federal level, excise taxes are charged on such things as gasoline and tanning salons.
  • Other ($206 billion). This category includes the remaining sources of federal revenue like federal tariffs and the death tax.  

The amount of money collected by the federal government ebbs and flows depending on economic growth, but the overall trend is upwards. Federal revenue decreased in 2008 and 2009 due to the Great Recession, but has since rebounded strongly for two reasons. First, the return of economic growth increases revenue collection. Second, the federal government has passed several large tax increases since 2010. In 2015, the federal government will collect the largest amount of revenue in its history, even after adjusting for inflation.

Where does all this money go?

The bulk of federal spending goes to Social Security, Medicare and Medicaid, and defense. These three categories compromise 62 percent of all federal spending in 2015.

The three giant “entitlement” programs are the areas of the budget that are expected to put immense pressure on federal spending over the long term. Without reforms, the CBO estimates that Social Security, Medicare, and Medicaid will represent 60 percent of the increase in federal spending over the next ten years. Net interest is not far behind. It is responsible for 24 percent of the increase in spending over the same time period.

Despite this record intake, federal spending will still outpace revenues by almost $500 billion this year. The government does not have a revenue problem, it has an overspending problem.

Note: All data refers to federal fiscal years, not calendar years. Data for fiscal year 2015 is based on estimates.


David Boaz

Today, the day American taxpayers wonder if the federal government is really worth all the money and hassle, I have an article at the Washington Post on how to give taxpayers more control.

Why shouldn’t taxpayers make direct decisions about how much money they want to spend on other government programs, like paying off the national debt, the war in Iraq or the National Endowment for the Arts? This would force the federal government to focus time and resources on projects citizens actually want, not just efforts that appeal to special interests.

To do this, we’d have to expand the concept of the campaign financing checkoff to all government programs. With this reform, the real expression of popular democracy would take place not every four years but every April 15. A new final page of the 1040 form would be created, called 1040-D (for democracy). At the top, the taxpayer would write in his total tax as determined by the 1040 form. Following would be a list of government programs, along with the percentage of the federal budget devoted to each (as proposed by Congress and the president). The taxpayer would then multiply that percentage by his total tax to determine the “amount requested” in order to meet the government’s total spending request. (Computerization of tax returns has made this step simple.) The taxpayer would then consider that request and enter the amount he was willing to pay for that program in the final column–the amount requested by the government, or more, or less, down to zero.

A taxpayer who thinks that $600 billion is too much to spend on military in the post-Cold War era could choose to allocate less to that function than the government requested. A taxpayer who thinks that Congress has been underfunding Head Start and the arts could allocate double the requested amount for those programs….

Real budget democracy, of course, means not just that the taxpayers can decide where their money will go but also that they can decide how much of their money the government is entitled to. Thus the last line on the 1040-D form must be “Tax refund.”  The form would indicate that none of the taxpayer’s duly calculated tax should be refunded to him; but under budget democracy the taxpayer would have the right to allocate less than the amount requested for some or all programs in order to claim a refund (beyond whatever excess withholding is already due him).

I regret that space considerations required the loss of my historical context:

Ever since Magna Carta, signed 800 years ago this spring, the Anglo-American tradition of fiscal policy has been that the people would decide how much of their money they would give to government. Parliament arose as a representative body to which the Crown would appeal for funds. The monarch had to explain why he or she was seeking more funds–and Parliament frequently rejected the request as frivolous, wasteful, or actually injurious to the commonweal.

Today, of course, we can’t count on the legislative branch to guard our tax dollars, and technology makes it easier for us to direct them ourselves.

More on taxes – and Magna Carta – in The Libertarian Mind. Find ideas for government programs that are unnecessary or too big at Downsizing the Federal Government.

Andrew J. Coulson

Back in the mid-1990s, I was often told that Americans had no interest in what other countries were doing policy-wise. As a result, it was purportedly futile to study policy using international evidence. Ignoring that warning, I wrote a book about education around the world, back to ancient times.

Whether or not the warning was valid at the time, there is now a great deal of interest in other nations’ education policies. Well… in one nation’s in particular: Finland’s. In that country, we are often told, every child is a Socrates—except for the ones who are Jane Austens or Hedy Lamarrs—and this is due, we are told, to one or more of its current education policies (the claimer gets to pick which ones).

A recent op-ed at Cleveland.com not only jumps on this Emulate Fantastic Finland bandwagon, it also purports to use the Finnish example to critique “market-based” education policies in general.

Here’s the main problem with the movement that proclaims “Country X is doing well educationally, so let’s emulate its education system!”: there are a lot of factors outside the classroom that affect educational outcomes, and that differ among countries—culture, resources in the home, etc.—and so it’s difficult to know to what extent a given nation’s performance is due to those factors or to its education policies. Fortunately, there’s a technique that not only circumvents this problem, it turns it to our advantage:

Comparing different sorts of school systems within nations. A study that compares public and private schools within India, for example, or that looks at the effects of private sector competition in Sweden on overall outcomes, eliminates international differences as a factor.  Still, the results of such studies, taken individually, have limited generalizability.

But what if we repeat this sort of comparison scores of times in a dozen or more very different countries and we find similar results occurring over and over again? If a particular approach to organizing and funding schools consistently outperforms other approaches across widely varying circumstances, we can be fairly confident that the observed pattern is the result of the system itself and not simply an accident of circumstance, because, although the circumstances will have varied from place to place, the results will have remained consistent. That is the technique I applied in a review of the worldwide research on public, private, and truly market-like school systems. As I found, It is the most market-like systems that consistently did the best job of serving families across 7 different outcome measures used by researchers.

Perhaps most ironically for the “Emulate Finland” crowd, Finland has been slipping in the rankings on the PISA test in recent years. Moreover, Finland never performed quite so well on the TIMSS international test and has been declining on it as well. And, as will be revealed in a forthcoming paper by Gabriel Sahlgren, the introduction of the most celebrated Finnish education policies does not support the view that they aided its rise on the PISA test, due to their timing.

Walter Olson

On Sunday afternoon Montgomery County, Maryland police and Child Protective Services seized the free-range Meitiv children, 10 year old Rafi and 6 year old Dvora, after their parents, Danielle and her husband Sasha, had again let them play by themselves at a park in Silver Spring, just outside D.C. The Meitiv family became the center of a national cause célèbre in January when the county charged the parents with child neglect for letting the two kids walk home from a park. In March, CPS found the neglect charge “unsubstantiated” but puzzlingly deemed the parents “responsible” for it anyway. This time, according to news reports, the kids were again walking back from the park and had gotten to within 1/3 mile of home when police intercepted and picked them up pursuant to a 911 call from “a neighbor” who had spotted them walking alone. The kids were supposed to return home by 6; the police held them for hours in the back of a squad car and did not call the by-then-frantic parents until 8 p.m. 

The Meitivs were reunited with their kids after agreeing to “sign a temporary safety plan to take them home, which means they are not allowed to leave the children unattended at all. …Police say after a thorough investigation, a decision about whether or not the Meitivs will face charges will be made.” 

I’m familiar with downtown Silver Spring, but even if I weren’t I could assure you: this is an outrage, and a big enough one that even in the Washington suburbs, where government often gets the benefit of the doubt, there is widespread outrage. One who’s been writing eloquently on the issue is Washington Post columnist Petula Dvorak (“Our rapid march toward police-state parenting has got to end,” she writes today) who emphasizes what is obvious to older readers – that kids used to walk on the street as a routine part of childhood – by quoting a checklist from a 1979 book on six-year-olds, on first-grade readiness: “Can he travel alone in the neighborhood (four to eight blocks) to store, school, playground, or to a friend’s home?”

From Lenore Skenazy’s account at Free-Range Kids of the Meitivs, a family she knows personally


Husband Sasha Meitiv, raised in the Soviet Union under complete state control, told his wife he was less surprised. “He said, ‘You don’t understand how cruel bureaucracy can be,’” said Danielle.

Lenore Skenazy has been instrumental in bringing this issue to national consciousness, and Cato has been glad to help. Don’t miss her hilarious, yet very powerful, speech at Cato in the spring of 2014 (“Quit Bubble-Wrapping Our Kids,” more), in which I not only moderate and ask questions, but even give my impression of a 3 year old deprived of a cookie. More recently her essay “Smothered by Safety” has led off discussion at Cato Unbound.


[adapted and expanded from Overlawyered

Alan Reynolds

Jim Tankersley of the Washington Post believes he has discovered “The Big Issue With Hillary Clinton Running Against Inequality”:

“Inequality got worse under Bill Clinton, not better. That’s true if you look at the share of American incomes going to the 1 percent, per economists Emmanuel Saez and Thomas Piketty. It’s also true when you look at the share of American wealth going to the super-super-rich, the top 0.1%, per research by Saez and Gabriel Zucman.”

What this actually reveals is the absurdity of (1) defining inequality solely by top 1% shares of pretax income less government benefits, and (2) judging any strong economic expansion as a failure because top 1% income shares always rise during strong economic expansions.

The graph uses the Congressional Budget Office estimates of top 1% shares, because (unlike Piketty and Saez) they include government benefits as income and subtract federal taxes.  What it shows is that both affluence and poverty are normally highly cyclical. When the top 1 percent’s share of after-tax income jumped from 11.2% in 1996 to 15.2% in 2000, the poverty rate simultaneously dropped from 11% to 8.7%.  Meanwhile, median income, after taxes and benefits, rose from $50,900 in 1993 to $61,400 by 2001, measured in 2011 dollars. 


Conversely, when the top 1% share fell from 16.7% in 2007 to about 12% in 2013 (my estimate), the poverty rate rose from 9.8% to 15%.  If we adopt the egalitarians’ top 1% mantra, must we conclude that inequality “got better” lately as poverty got worse?

The income peak of 2000 is a tough act to beat, and few of us are ahead of it today – least of all the top 1%. The brief surge in top incomes of 2006-2007, like the related speculative surge in housing prices, proved unhealthy and unsustainable. But weak economic performance and high poverty in the past four years is no reason to dismiss the 3.7% average economic growth of 1983-2000 simply because such prolonged prosperity made more people rich.

Tankersley also asks us to “look at the share of American wealth going to the super-super-rich, the top 0.1%, per research by Saez and Gabriel Zucman.”  As I’ve explained in The Wall Street Journal, however, the Saez-Zucman estimates misinterpret shrinking shares of capital gains and investment income still reported on individual tax returns, or shifted from the corporate tax to a pass-through firm, rather than (like most middle-class savings) sheltered in IRA, 529 and 401(k) plans.

It is easy to envision Republican partisans welcoming and adopting the Tankersley theme that Hillary Clinton should now be ashamed of the strong economy of 1996-2000 because “inequality got worse” as many new firms were created and stock prices soared. Yet whenever stocks crashed and the top 1% share fell (making inequality “better”?) the poverty rate rose and median incomes were flat or down.

Some Republican candidates have already alluded to the same pretax, pre-transfer “top 1%” figures to claim inequality worsened under Obama – meaning since 2009.  According to Piketty and Saez, real average incomes of the top 1% were indeed higher in 2013 ($1,119,315) than in the crash of 2009 ($975,884).  Before crashing below $1 million in 2009, though, top 1% incomes had been much higher in 2007 (the equivalent of $1,533, 064 in 2013 dollars) and in 2000 ($1,369,780). The rising tide has not lifted many small boats or big yachts since 2009, because the tide hasn’t risen much; higher tax rates in 2013 certainly didn’t help.

The trouble with Republicans using highly cyclical top 1% statistics as a political weapon against Democrats is that doing so requires capitulating to the divisive and dishonest leftist fallacy that poor people and middle-income people do best when the top 1% is doing badly.

The truth is that the poverty rate fell sharply and middle-incomes rose briskly in President Clinton’s second term, and the top 1% gladly reported more taxable income and paid more taxes as the tax on capital gains was cut from 28% to 20%.  There is a lesson to be learned here, but it is not to denigrate the so-called rising inequality of the late 1990s.

Neal McCluskey

Professor Paul Campos, something of an antagonist of our higher education system, caused a bit of ruckus last week when he wrote in the New York Times that skyrocketing college prices cannot be blamed on falling state appropriations to schools. The reality, of course, is that declining public support could explain some of the increase in prices (though not much at private colleges) but it seems unlikely it would explain all of the increases.

Let’s look at the trends.

First, note that overall state and local support, at least for general operations at public institutions, is indeed down over the last several years. Using data from the latest State Higher Education Finance report – released just yesterday – total state and local support for general operations at public colleges, adjusted for inflation using a higher education-specific index, fell from a peak of $83 billion in 2008 to $73 billion in 2014, a pretty big drop. That said, in 1989 total spending was only $64 billion, which means it has risen since then.

Of course, there has been a huge increase in public college enrollment since 1989, rising from 7.5 million full-time equivalent students to 11.1 million. So, as you can see from the blue line in the chart below, appropriations per student have definitely dropped. But do those drops explain rising prices?

Here is where the red line comes in. Note, the line is revenue received per full-time equivalent (FTE) student after accounting for state and institutional aid to students. What it shows is that net revenue per student has been going up, as expected. But look at the black, linear trend lines, which enable us to get a sense for what the overall trends have been. They show that while public institutions have lost roughly $70 per year, per student, in public appropriations, they have increased their net tuition revenue per-student $101 a year, for an annual net gain of $31.

The SHEEO data, however, are not the most damning when it comes to the Cheap States Made Us Do It hypothesis. Data from the most recent College Board pricing report, which capture state appropriations per FTE student and the cost not just of tuition and fees, but also room and board, show a much greater gap between rising college prices and what would be needed to make up for lost public funding. The College Board also uses a standard price index for calculating inflation instead of one tailored to higher ed, the latter of which would overstate past spending were all higher education costs artificially inflated faster than a “normal” basket of goods. Say, perhaps, by huge subsidies to consumers.

As the chart below illustrates, while public institutions have lost about $72 per FTE student each year using College Board data, they have increased published tuition, fee, room and board charges about $357 per year. That’s a hefty net gain of $285 per student, per year.

So what do these charts show us? What I have written before, and what Campos just argued: More is going on in rampantly inflated college pricing than just lost state funding. Almost certainly much more.

Tim Lynch

Conrad Black, writing at National Review Online, blasts the “plague of unjust prosecutions” in the American legal system.

Here is an excerpt: 

Another disturbing recent development in the saga of gonzo American prosecutors is New York State attorney general Eric Schneiderman’s prosecution of the Evans Bank for violating consumer-protection regulations by not adequately making loans available in lower-income, largely minority, areas of Buffalo. These laws are sloppily written and are just pandering to specific income-level and ethnic voters, and enable opportunistic prosecutors to intensify their campaigns for higher office by pandering to targeted voting blocs and trying to superimpose affirmative action over commercial criteria on how banks treat their depositors’ and shareholders’ money. A competing bank chairman, not involved in any such case, Frank Hamlin of Canandaigua National Bank, wrote last month in a letter to his shareholders that he was “extremely suspicious of the arbitrary and capricious manner in which [prosecutors] are abusing the legal system in order to further their own political and economic interests.” Of the prosecution of Evans and another bank, he wrote that “the regulations are vague on explaining what conduct is actually prohibited. The media, of course, does the people no service by merely assuming these prosecutions are based in sound legal theory and fact … [unaware that the] legal system has mutated its focus from time-honored legal principle and justice to efficiency and political expediency… . The reason that 98 percent of prosecutions are settled and not taken to trial … has to do with a fundamental and reasonable lack of faith that our legal system is working properly.” It is a brave stand for a community banker to take opposite an attorney general who seeks votes by abusive grandstanding in the Spitzer-Cuomo tradition (that propelled both of them to the governor’s chair)….  The United States is afflicted by a plague of unjust prosecutions, almost automatic convictions, and often one-way tickets to a bloated, corrupt, and frequently barbarous correctional system. This is not what the founders and guardians of the sweet land of liberty intended.   Read the whole thing.   For related Cato work, go here and here.  

Simon Lester

A few weeks ago, I wrote about the possibility of the Trans Pacific Partnership (TPP) saying something about the minimum wage, which the White House had been suggesting it would.  I was a bit skeptical that the TPP would really do anything on this issue, and subsequently, I spoke to a U.S. government official who seemed to indicate that the whole thing was overblown, and nothing much would happen with the minimum wage in TPP.

But now I see that Victoria Guida of Politico has been speaking to higher ranking U.S. government officials, who said the following:

The Trans-Pacific Partnership pact, which the White House is negotiating with 11 countries, would require members to set and enforce laws on minimum wages, maximum work hours and occupational safety and health standards — things no other U.S. trade agreement has done.

Labor Secretary Tom Perez, too, is practiced at explaining why the TPP should matter to its critics, calling the labor provisions of NAFTA and the Central American Free Trade Agreement “woefully insufficient.” Labor obligations, he acknowledges, must be in the main text — as they have been in the most recent free-trade agreements — and coupled with sanctions if countries don’t comply.

The worker protections in the deals with Peru, South Korea, Colombia and Panama stemmed from the “May 10 agreement” that House Democrats reached with the George W. Bush administration in 2007, which covered freedom of association, collective bargaining rights, the elimination of forced or compulsory labor, child labor and employment discrimination. The TPP would go further with its minimum wage, hours and workplace safety standards, Perez said.

What exactly does it mean that the minimum wage would be included in the TPP?  My current understanding is that it means that all TPP parties must have a minimum wage (and I’m told that all but one currently do), but that it does not matter what the minimum wage is.  In theory, then, you could set your minimum wage at 1 cent per hour, to make it meaningless.

For those of us who see economic harm in the minimum wage, what are the implications?  Is this all just for show, and nothing to worry about?  Do other TPP benefits outweigh these costs?  Is this the beginning of much worse things to come in trade agreements?  Definitely something to keep our eye on in the final TPP text.

David Boaz

I wrote last week about Paul Krugman’s claim that “there basically aren’t any libertarians” because “There ought in principle, you might think, be people who are pro-gay-marriage and civil rights in general, but opposed to government retirement and health care programs — that is, libertarians — but there are actually very few.” I offered some evidence from Gallup, Pew, and other polls that in fact there are substantial numbers of voters who hold libertarian-ish views on both economic and social issues.

Bryan Caplan runs some regressions to find that voters’ positions on a variety of issues don’t line up the way Krugman assumes they do. Ilya Somin explores various problems with Krugman’s claims, including this:

It’s also possible to try to justify Krugman’s claim by arguing that most of those people who hold seemingly libertarian views haven’t thought carefully about their implications and are not completely consistent in their beliefs. This is likely true. But it is also true of most conservatives and liberals. Political ignorance and irrationality are very common across the political spectrum and only a small minority of voters think carefully about their views and make a systematic attempt at consistency. Libertarian-leaning voters are not an exception to this trend. But it is worth noting that, controlling for other variables, increasing political knowledge tends to make people more libertarian in their views than they would be otherwise.

Nate Silver, Krugman’s erstwhile New York Times colleague who now runs the FiveThirtyEight website, writes, “There are few libertarians. But many Americans have libertarian views.” He notes:

If Krugman is right, you should see few Americans who are in favor of same-sex marriage but oppose government efforts to reduce income inequality, or vice versa.

As it turns out, however, there are quite a number of them; about 4 in 10 Americans have “inconsistent” views on these issues.

Not actually inconsistent, of course, just not consistently “liberal” or “conservative.” Those “inconsistent” Americans just might be consistently libertarian or anti-libertarian. Silver has a nice matrix, grounded in data from the General Social Survey unlike Krugman’s off-the-cuff matrix:

On those two issues, the largest group take liberal positions on both. Substitute different issues – cutting taxes, say, or internet censorship – and you’d get larger numbers of libertarians. But whatever set of issues you choose, you’re likely going to find significant numbers of voters taking positions that don’t fit into Krugman’s two boxes.

Silver speculates on why there seems to be so little political representation for these large groups of voters:

…the hard-core partisans who vote in presidential primaries are much more likely to take consistently liberal or conservative positions than the broader American population, as Krugman’s colleague Nate Cohn points out.

And the parties themselves — who have disproportionate influence in the primaries — have highly partisan views by definition. Almost all voting in the U.S. Congress, on social issues and economic issues alike, can be reduced to a single, left-right dimension.

Does this make any sense? Why should views on (for example) gay marriage, taxation, and U.S. policy toward Iran have much of anything to do with one another? The answer is that it suits the Democratic Party and Republican Party’s mutual best interest to articulate clear and opposing positions on these issues and to present their platforms as being intellectually coherent. The two-party system can come under threat (as it potentially now is in the United Kingdom) when views on important issues cut across party lines.

Maybe that’s why we have so much trouble convincing people that there are libertarian voters.

Nate Silver looked at growing libertarian sentiment back in 2011.