Archive for December, 2009
Stifling Innovation by Subsidizing It
In 2007, the Advanced Technology Vehicles Manufacturing Loan Program was created in the Department of Energy to support the development of advanced (i.e., “green”) technology vehicles. Last year Congress appropriated $7.5 billion to support a maximum of $25 billion in loans. So far, the subsidies have been dished out to Ford ($5.9 billion), Nissan ($1.6 billion), Tesla Motors ($465 million), and Fisker Automotive ($528 million).
Darryl Siry, a former official at Tesla, has written a piece for Wired that illuminates a fundamental problem with the government trying to pick winners and losers in the marketplace:
To the recipients the support is a vital and welcome boost. But this massive government intervention in private capital markets may have the unintended consequence of stifling innovation by reducing the flow of private capital into ventures that are not anointed by the DOE.
Private investors, such as venture capitalists, make investments based on perceived risk and expected financial returns. Companies with government backing are more attractive to investors because government support “amounts to free leverage for the venture capitalist’s bet” given that “the upside is multiplied and the downside remains the same since the most the equity investor can lose is the original investment.”
According to Siry:
The proposition is so irresistible that any reasonable person would prefer to back a company that has received a DOE loan or grant than a company that has not. It is this distortion of the market for private capital that will have a stifling effect on innovation, as private capital chases fewer deals and companies that do not have government backing have a harder time attracting private capital. This doesn’t mean deals won’t get done outside of the energy department’s umbrella, but it means fewer deals will be done and at worse terms.
Siry concludes that a solution to avoiding these market distortions would be to “cast the net more broadly” by giving subsidies to more companies. That’s where I part ways with his analysis. The real solution is to get the Department of Energy out of the subsidy business – and energy markets – altogether.
Iranian Thugs Take Crackdown Worldwide
Political repression is old news. Thuggish regimes have been holding their citizens prisoner for centuries. But Iran’s government now is borrowing an innovative Soviet and Nazi tactic: targeting family members of dissenters, even those living in the U.S.
Reports the Wall Street Journal:
His first impulse was to dismiss the ominous email as a prank, says a young Iranian-American named Koosha. It warned the 29-year-old engineering student that his relatives in Tehran would be harmed if he didn’t stop criticizing Iran on Facebook.
Two days later, his mom called. Security agents had arrested his father in his home in Tehran and threatened him by saying his son could no longer safely return to Iran.“When they arrested my father, I realized the email was no joke,” said Koosha, who asked that his full name not be used.
Tehran’s leadership faces its biggest crisis since it first came to power in 1979, as Iranians at home and abroad attack its legitimacy in the wake of June’s allegedly rigged presidential vote. An opposition effort, the “Green Movement,” is gaining a global following of regular Iranians who say they never previously considered themselves activists.
The regime has been cracking down hard at home. And now, a Wall Street Journal investigation shows, it is extending that crackdown to Iranians abroad as well.
In recent months, Iran has been conducting a campaign of harassing and intimidating members of its diaspora world-wide — not just prominent dissidents — who criticize the regime, according to former Iranian lawmakers and former members of Iran’s elite security force, the Revolutionary Guard, with knowledge of the program.
CBO, the Wizard of Oz, and the Keynesian Fairy Tale
The Obama Administration said that the so-called stimulus was necessary so that the unemployment rate would not rise above 8 percent. Indeed, the White House warned that the joblessness rate would climb to 9 percent if lawmakers did not approve the $787 billion package. Critics responded by explaining that making government bigger would divert resources from the productive sector of the economy and hurt growth. These skeptics also noted that nations using “Keynesian” policy, such as the United States in the 1930s and Japan in the 1990s, did not generate good results. And since the unemployment rate is now above 10 percent, it certainly seems like opponents were correct.
But now the supposedly non-partisan Congressional Budget Office has jumped to the defense of the White House, estimating that the spending bill actually generated beween 600,000 and 1.6 million jobs. How can that be, you may ask, when the number of jobs has fallen by more than 3 million? The CBO neatly sidesteps that real-world concern by moving the goalposts, using a slightly more sophisticated version of Obama’s “jobs created or saved” alchemy. Their jobs-created estimate is compared to a make-believe baseline of how many jobs there would be “without the law.”
CBO estimates that in the third quarter of calendar year 2009, an additional 600,000 to 1.6 million people were employed in the United States, and real (inflation-adjusted) gross domestic product (GDP) was 1.2 percent to 3.2 percent higher, than would have been the case in the absence of ARRA. …CBO’s current estimates differ only slightly from those CBO prepared in March 2009. At that time, CBO projected that in the third quarter of 2009, U.S. employment would be higher by 600,000 to 1.5 million people with ARRA than it would be without the law, and real GDP would be 1.1 percent to 3.0 percent higher. CBO’s new estimates reflect small revisions to earlier projections of the timing and magnitude of changes to spending and revenues under ARRA. …Economic output and employment in the spring and summer of 2009 were lower than CBO had projected at the beginning of the year. But in CBO’s judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects of ARRA.
Needless to say, this means there is no objective benchmark. The unemployment rate could jump to 15 percent and total job losses could reach 10 million, but CBO would continue to say, for all intents and purposes, that the results from their Keynesian model are more important than any real-world numbers. This is the fiscal policy version of the Wizard of Oz, and we’re supposed to ignore reality just as Dorothy and friends were supposed to ignore the man behind the curtain.
To be fair, there is nothing inherently wrong with CBO’s methodology. Economic analysis frequently requires people to make assumptions about how the world would behave with or without a certain policy. So the real question is whether Keynesian economics makes sense from a theoretical perspective, whether there is any supporting evidence, and whether there are more compelling alternatives. Click the links and decide for yourself.
Cato’s Legal Arguments Worry U.S. Government
Last month, Cato (joined by Cato senior fellow Randy Barnett) filed a brief in United States v. Comstock, a case regarding the constitutionality of a law authorizing the federal government to civilly commit anyone in the custody of the Bureau of Prisons whom the attorney general certifies to be “sexually dangerous.” The effect of such an action is to continue the certified person’s confinement after the expiration of his prison term, without proof of a new criminal violation.
As I wrote in a previous blog post, “the use of federal power here is unconstitutional because it is not tied to any of Congress’s limited and enumerated powers.” Moreover, the government’s reliance on the Necessary and Proper Clause (Article I, Section 8), “is misplaced because that clause grants no independent power but merely ‘carries into execution’ the powers enumerated elsewhere in that section.” The commitment of prisoners after their terms end simply cannot fit into one of the enumerated powers.
While we of course hope that the Supreme Court pays attention to our brief, we know that Solicitor General Elana Kagan, at least, is concerned enough about our arguments to spend several pages of the government’s reply brief addressing them (see pages 5-9).
For more on Comstock, see its case page on SCOTUSwiki, which now has all the briefs and will around the Jan. 12 argument date be populated with argument previews and reviews, as well as links to media coverage.
Schumer Fouls Out
Chuck Schumer is perhaps my favorite U.S. Senator because of his endless capacity to make me laugh. He often reminds me of Inspector Clouseau, the earnest but bumbling detective from the Pink Panther movies.
Through an excellent post by Scott Lincome today, I learned not only that official NBA jerseys (those worn by the players) are made for Adidas in upstate New York, but that Senator Schumer is attempting to thwart the company’s decision to move production to Thailand.
I share Scott’s assessment of the absurdity of Schumer’s efforts, but more importantly, I wanted to share this humorous footage of Schumer’s awkward nativist appeal that basketball is an American-centric game….conducted in front of German-born NBA Star Dirk Nowitski’s jersey.
Classic!
Is Trade Policy Obsolete?
That is one of the conclusions in my new paper, “Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete.”
For hundreds of years, trade policy has been premised on the assumptions that exports are good, imports are bad, and the interests of domestic producers are tantamount to the “national interest.” Though that mercantilist worldview has never been accurate, its persistence as a pillar of trade policy into the 21st century is especially confounding given the emergence and proliferation of disaggregated production processes, transnational supply chains, and cross-border investment. Those trends have blurred any meaningful distinctions between “our” producers and “their” producers and speak to a long chain of interdependent economic interests between product conception and consumption.
Lying and the Federal Government
Speaking of White House gate-crashers Tareq and Michaele Salahi (as we were trying to think of an excuse to do, to increase blog traffic), Slate says they might be guilty of a federal crime. What crime? Well, possibly trespassing on federal property. Or maybe the “broad prohibition on lying to the federal government.” Title 18, section 1001 of the U.S. Code
can be used to prosecute anyone who “knowingly and willfully … falsifies, conceals, or covers up by any trick, scheme, or device a material fact” or “makes any materially false, fictitious, or fraudulent statement or representation” to the government. That could include lying about your arrest record on a government job application, claiming a fake deduction on your taxes, or telling someone you’re on the White House invite list when you’re not.
I can’t help wondering, is there any equally broad prohibition on lying by the federal government? If the federal government, or a federal agency, or a federal official “knowingly and willfully … falsifies, conceals, or covers up” information or “makes any materially false, fictitious, or fraudulent statement or representation” — about the costs of a new entitlement, or how a candidate for reelection will act in his next term, or case for going to war — is that prohibited? Or are the rules tougher on the ruled than the rulers?
Today’s White House ‘Jobs Summit’
Today’s Politico Arena asks:
The WH Jobs Summit: “A little less conversation? A little more action? ( please)”
My response:
College Students to Taxpayers: ‘Rent Now, Oppressors!’
Inside Higher Ed reports today on growing college student acitivism. And what are the young scholars suddenly so active about? Not unjust wars, racism, or anything else so high-minded. No, today the “no justice, no peace!” chants are all about the injustice of students being asked to pay for more of their hugely taxpayer-subsidized educations.
There’s a word for this kind of activism, and it’s not “idealism” or anything else so complimentary. It’s “rent seeking.” Or, if you want to put it more bluntly, “freeloading.”
Thursday Links
- A few questions for Ben Bernanke: “Perhaps the most important question Bernanke should answer is: how will he re-build and maintain an independent Fed?”
- Before considering Bernanke’s role in containing the financial crisis, Congress should investigate the role of Fed policy in allowing the housing bubble to grow.
- Prepare to pay more: Today, an average insurance policy can cost about $2,985 for an individual or $6,328 for a family. Under the Senate bill, those premiums will increase to $5,800 for an individual worker and $15,200 for a family plan by 2016.
- Why the White House “jobs summit” is unnecessary.
- Made on Earth: How global economic integration renders trade policy obsolete.
- Podcast: “ObamaCare the Budget Buster.” More, here.
Three Keys to Surveillance Success: Location, Location, Location
The invaluable Chris Soghoian has posted some illuminating—and sobering—information on the scope of surveillance being carried out with the assistance of telecommunications providers. The entire panel discussion from this year’s ISS World surveillance conference is well worth listening to in full, but surely the most striking item is a direct quotation from Sprint’s head of electronic surveillance:
[M]y major concern is the volume of requests. We have a lot of things that are automated but that’s just scratching the surface. One of the things, like with our GPS tool. We turned it on the web interface for law enforcement about one year ago last month, and we just passed 8 million requests. So there is no way on earth my team could have handled 8 million requests from law enforcement, just for GPS alone. So the tool has just really caught on fire with law enforcement. They also love that it is extremely inexpensive to operate and easy, so, just the sheer volume of requests they anticipate us automating other features, and I just don’t know how we’ll handle the millions and millions of requests that are going to come in.
Palmer and Cowen on Libertarianism
On Tuesday I hosted a Book Forum for Tom Palmer’s new book, Realizing Freedom: Libertarian Theory, History, and Practice. You can see the video here. I thought Tyler Cowen’s comments were very astute, so I reproduce an abridged version here:
The first question is, “What do I, as a reader, see as the essential unity or unities in the book?” And I see really two. The first is I see this as a construction and articulation of a vision of what I call reasonable libertarianism. I think we’re in a world right now that is growing very partisan and very rabid, and a lot of things which are called libertarian in the Libertarian Party, or what you might call the Lew Rockwell / Ron Paul camp, are to my eye not exactly where libertarianism should be, and I think Tom has been a very brave and articulate advocate of a reasonable libertarianism. And if I ask myself, “Does the book succeed in this endeavor?” I would say, “Yes.”
The second unity in the book, I think, has to do with the last thirty years of world history. I know in the United States now there is less liberty. But overall, the world as a whole, over the last thirty years, has seen more movement towards more liberty than perhaps in any other period of human history. And I suspect most of these movements toward liberty will last. So there have been these movements towards liberty, and they have been motivated, in part, by ideas. The question arises, which are the ideas that have been the important ones for this last thirty years? And I view Tom’s book, whether he intended it as such or not, as a kind of guide to which have been the important ideas driving the last thirty years. And a lot of the book goes back into history pretty far – the eighteenth century, the Levellers, debates over natural rights – and I think precisely because it takes this broader perspective it is one of the best guides – maybe the best guide – to what have been the most important ideas driving the last thirty years (as opposed to the misleading ideas or the dead-end ideas). So that’s my take on the essential unities.
Another question you might ask about a collection of essays is, “Which of them did I like best?” I thought about this for a while, and I have two nominations. The first one is “Twenty Myths about Markets,” which is the essay on economics. I don’t know any piece by an economist that does such a good job of poking holes in a lot of economic fallacies and just laying out what you hear so often. You would think an economist would have written this long ago, but to the best of my knowledge, not.
The other favorite little piece of mine is called “Six Facts about Iraq,” which explains from Tom’s point of view – and Tom has been there a number of times – what’s going on in Iraq and why. It is only a few pages long, but I felt that I got a better sense of Iraq reading this short piece than almost anything else I’ve come across.
I’m not sure exactly what’s the common element between the two I liked best – they both start with a number – but I think the ones I liked best reminded me the most of Tom when he is talking. I had the sense of Tom being locked in a room, and forced to address a question, and not being allowed to leave until he had given his bottom line approach. And I think what he’s very good at through out the book is just getting directly to the point.
There’s more to Tyler’s comments, and lots more from both of them in response to questions, so check out the video.
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