Archive for July, 2010
Retiring Official: DOT Is Sitting on Pro-Toyota Probe Results
Damning if true:
A new report in the WSJ strongly suggests Transportation Secretary Ray LaHood is unwilling to release a report on the agency’s investigation into charges of “sudden acceleration” in Toyotas because its findings are too favorable to the Japanese automaker’s case. The source is a high-ranking retiring NHTSA official, George Person, formerly chief of the agency’s Recall Management Division.
Department spokeswoman Olivia Alair describes the report as ongoing and not completed; she also denies that Person was “involved in” the probe but does not appear to deny that he was briefed on the resulting report and is familiar with its contents.
Person says some NHTSA officials objected to the keeping of the report under wraps; it is not known what position was taken by the Obama appointee who heads NHTSA, David Strickland, a former lobbyist for the trial lawyers’ association AAJ and a principal author of the horrendous children’s-product-safety law CPSIA. Earlier here.
“Wherever the science leads,” indeed.
Social Security Bloviate-fest
The annual bloviate-fest on Social Security has begun, even before the Social Security Trustees’ report has been released this year. Apparently the report is to be released next week — after a three-month delay from its statutory release deadline of April 1.
There’s concern from groups interested in preserving Social Security that President Obama’s National Commission on Deficit Reduction will propose changes to the program involving benefit cuts. These groups, which include the AFL-CIO, MoveOn.org, NOW, and the NAACP have issued and allegedly rebutted five “myths” about Social Security. But their selection of myths and myth-busting arguments are weak and involves questionable arguments.
Below is a list of the twisted logic that these groups are using to convince voters that all’s well with Social Security’s finances and that we should not worry and just be happy. Also below are my reactions to the “faux-myth-busters” arguments.
Myth #1: Social Security is going broke.
Reality: There is no Social Security crisis. By 2023, Social Security will have a $4.6 trillion surplus (yes, trillion with a ‘T’). It can pay out all scheduled benefits for the next quarter-century with no changes whatsoever. After 2037, it’ll still be able to pay out 75% of scheduled benefits — and again, that’s without any changes. The program started preparing for the Baby Boomers’ retirement decades ago. Anyone who insists Social Security is broke probably wants to break it themselves.
Real Reality: We’re in a vortex, and these folks refuse to extend help. Yes, I also don’t like the “crisis” terminology. A better descriptor is “vortex,” the upper reaches of which can seem calm, for a time. But eventually, we’ll realize that what we thought was a good place to be is really an inexorable path to the doom of being spun around super fast.
Yes, Social Security will have a surplus (of Treasury IOUs) of $4.6 trillion by 2023. But, notwithstanding the “T” attached to that sum, all’s not well. By 2023, the program’s net liabilities (the shortfall of future revenues relative to future benefit commitments under existing laws) will exceed $20 trillion (note, also with a “T”). Last I checked, 20 exceeds 4.6 by about four fold.
The fact that Social Security “will be able to pay” 75% of scheduled benefits after 2037 means we would have to impose a 25% benefit cut at that time if no adjustments are made earlier. It’s said that the natural human instinct for justice emanates from a simple thought experiment — of placing oneself in the shoes of the victims. In this case, it’s those poor future souls who would have to acquiesce to a 25 percent benefit cut. But they would be forced to do so only because the faux-myth-busting authors shrieked in horror when confronted with a much smaller benefit cut that would be required now to place the program’s finances on a sustainable course. Read the rest of this post »
Even Keynesian Accounting Can’t Find All That ‘Stimulus’
From January 2009 to the present, President Obama and his team have repeatedly made grandiose claims about the economic benefits of shoveling money at shovel-ready projects or green jobs. “It is largely thanks to the Recovery Act that a second Depression is no longer a possibility,” said the President. He also claimed that lavish spending alone (not Federal Reserve actions or bank bailouts) is what prevented the unemployment rate from “getting up to . . . 15%.”
If any of that were remotely close to being true then, as a matter of simple accounting, rising federal spending would have shown up as a huge offset to falling GDP in 2009, and also as a major component of the modest increase in GDP growth in early 2010. On the contrary, the table below shows that the increase in federal nondefense spending contributed only two-tenths of one percent (0.2) to the change in GDP in 2009. That was no better than 2008 when the Recovery Act did not exist. If nondefense spending had not increased at all in 2009 (unlike 2008) then GDP would have fallen 2.8% rather than 2.6% — scarcely the difference between a recession and a “second Depression.” If nondefense federal spending had not increased at all in 2010, the economy still would have grown at a 3.6% pace in the first quarter, 2.1% in the second. Cutbacks in state and local spending were a trivial damper on GDP growth last year, contrary to recent speculation, and real state and local spending rose significantly in this year’s second quarter (unlike the first).
This is just an exercise in crude Keynesian accounting, not economics. Yet it nonetheless makes the stimulus bill look like a huge waste of money. The reason Keynesian accounting is no substitute for economics is that governments can only spend other peoples’ money. To claim that such spending is a net addition to “aggregate demand” is to ignore those other people — namely, current and future taxpayers.
Nobel Laureate Robert Lucas put it this way:
If the government builds a bridge . . . by taking tax money away from somebody else, and using that to pay the bridge builder — the guys who work on the bridge — then it’s just a wash. It has no first-starter effect. There’s no reason to expect any stimulation. And, in some sense, there’s nothing to apply a multiplier to. You apply a multiplier to the bridge builders, then you’ve got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. And then taxing them later isn’t going to help, we know that.
Peter Ferrara’s Too-Nice Attack on Phony Washington Budget Deals
Writing in the Wall Street Journal, Peter Ferrara of the Institute for Policy Innovation explains that Washington budget deals don’t work because politicians never follow through on promised spending cuts. This is a very relevant argument, since President Obama’s so-called Deficit Reduction Commission supposedly is considering a deal featuring $3 of spending cuts for every $1 of tax increases (disturbingly reminiscent of what was promised — but never delivered — as part of the infamous 1982 TEFRA budget scam).
Washington’s traditional approach to balancing the budget is to negotiate an agreement on a package of benefit cuts and tax increases. President Obama’s deficit commission seems likely to recommend just this strategy in December. The problem is that it never works. What happens is the tax increases get permanently adopted into law. But the spending cuts are almost never fully adopted and, even if they are, they are soon swept away in the next spendthrift budget. Then — because taxes weaken incentives to produce — the tax increases don’t raise the revenue that Congress initially projected and budgeted to spend. So the deficit reappears.
In 1982, congressional Democrats promised President Ronald Reagan $3 in spending cuts for every dollar in tax increases. Reagan went to his grave waiting for those spending cuts. Then there was the budget deal in 1990, when President George H.W. Bush agreed to violate his famous campaign pledge — “Read my lips, no new taxes,” he had said in 1988 — in pursuit of a balanced budget. But after the deal, the deficit increased substantially: to $290 billion in 1992 from $221 billion in 1990.
As the excerpt indicates, Peter’s column is solid and everything he writes is correct, but it suffers from one major sin of omission. He should have exposed the dishonest practice of using “current services” or “baseline” budgeting. This is the clever Washington practice of assuming that all previously planned spending increases should go into effect and categorizing any budget that increases spending by a lower amount as a spending cut. In other words, if the hypothetical “baseline” budget increases by 7 percent, and a budget is proposed that increases spending by 4 percent, that 4 percent spending increase magically gets transformed into a 3 percent spending cut.
Politicians love “current services” or “baseline” budgeting for two reasons. First, it allows them to have their cake and eat it too. They can simultaneously shovel more money to interest groups while telling voters they are “cutting” spending. Second, it rigs the process in favor of bigger government. This is because lawmakers who actually propose to restrain the growth of spending can be lambasted for wanting “savage” and “draconian” budget cuts totaling “trillions of dollars” when all they’re actually proposing is to have spending grow by less than the so-called baseline. But since people in the real world use honest math rather than “current services” math, they assume that spending is being reduced next year by some large amount compared to what is being spent this year. And if the phony budget cut numbers sound too big (especially for specific programs such as Medicare or Medicaid), they sometimes conclude that it would be better to raise taxes.
Imports Viewed Skeptically at the Washington Post
What explains the chronically misleading depictions and interpretations of international trade in the Washington Post? Is it economic illiteracy? Intellectual indifference? Institutional bias? What?
The opening paragraph in Neil Irwin’s story (online, July 30, 2010, 9:13 am) reads:
The pace of economic growth slowed this spring, according to new government data, as Americans remained reluctant to consume and imports soared.
And a few paragraphs later:
The biggest drain on growth was imports, which rose 28.8 percent, compared with only a 10.3 percent gain in exports.
On July 14, one day after the Commerce Department’s monthly trade figures were released, revealing a slight increase in the trade deficit, the opening paragraph in the Washington Post story under the heading “Rising Imports Offset Export Gains” read:
America’s resurgent appetite for imports may undermine the Obama administration’s efforts to rekindle job growth, with a rise in overseas purchases by American businesses and households undercutting the benefits of increased U.S. sales abroad.
Education Standards at Work — the NY Debacle
President Obama today touted his Race to the Top program, which pressures states to, among other things, adopt national education standards. Also today, the New York Board of Regents revealed that it had been misleading its citizens for years, giving them an inflated notion of how well their children were performing academically. Last year 77 percent of students were ”proficient” in English according to NY state standards. This year it’s 53 percent.
So what’s to stop this from happening at a national level? In fact, what’s to stop an endless cycle of setting high standards that produce low scores, gradually dumbing the standards down to give the illusion of progress, and then resetting them to a high level again when the deceit is discovered?
At any stage of this cycle, officials can claim that students are showing improvement or that steps are being taken to raise standards — without any need to, you know, improve the schools.
Instead, we could just adopt in education the same system of freedom and incentives that’s been responsible for actual progress in every other area of human activity for the past two centuries. Or is that just too obvious?
The Letter Is Different, but the Spirit Still Lives
An update from my post yesterday about the bill to establish a Commission to End the Trade Deficit (now called the “Emergency Trade Deficit Commission”): apparently the bill that passed the House was different from the bill initially considered, and to which I linked (and commented). My apologies.
The bill that was passed had many of the most egregious provisions and provocative wording stripped out. There was no talk of eliminating the trade deficit, for example. And the provision that would have prohibited congressional consideration of any trade deal before the Commission reported is, thankfully, gone too. But I would suggest that the underlying message of the bill — that individuals cannot be trusted to make their own decisions about which products to buy, and from where — is intact. There are plenty of references to “improving trade balances,” “enhancing the competitiveness of U.S. manufacturers,” and environmental and labor standards. I stand by comments about those sentiments.
Maybe a commission is a useful way of distracting members of Congress from actually doing anything, and certainly this bill is less offensive than the original, but it still betrays an unwillingness of some members of Congress to let consumers and firms make decisions without a commission studying, reporting on, and possibly correcting them.
Are These Examples of Washington Corruption?
The “appearance of impropriety” is often considered the Washington standard for corruption and misbehavior. With that in mind, alarm bells began ringing in my head when I read this Washington Times report about Jacob Lew, Obama’s nominee to head the Office of Management and Budget. A snippet:
President Obama’s choice to be the government’s chief budget officer received a bonus of more than $900,000 from Citigroup Inc. last year — after the Wall Street firm for which he worked received a massive taxpayer bailout. The money was paid to Jacob Lew in January 2009, about two weeks before he joined the State Department as deputy secretary of state, according to a newly filed ethics form. The payout came on top of the already hefty $1.1 million Citigroup compensation package for 2008 that he reported last year. Administration officials and members of Congress last year expressed outrage that executives at other bailed-out firms, such as American International Group Inc., awarded bonuses to top executives. State Department officials at the time steadfastly refused to say if Mr. Lew received a post-bailout bonus from Citigroup in response to inquiries from The Washington Times. But Mr. Lew’s latest financial disclosure report, provided by the State Department on Wednesday, makes clear that he did receive a significant windfall. …The records show that Mr. Lew received the $944,578 payment four days after he filed his 2008 ethics disclosure.
Why did Citigroup decide to hire Lew, a career DC political operator, for $1.1 million? As a former political aide, lobbyist, lawyer, and political appointee, what particular talents did he have to justify that salary to manage an investment division? Did the presence of Lew (as well as other Washington insiders such as Robert Rubin) help Citigroup get a big bucket of money from taxpayers as part of the TARP bailout? Did Lew’s big $900K in 2009 have anything to do with the money the bank got from taxpayers? Is it a bit suspicious that he received his big windfall bonus four days after filing a financial disclosure?
See if you can draw any conclusion other than this was a typical example of the sleazy relationship of big government and big business.
Lest anyone think I’m being partisan, let’s now look at another story featuring Senator Richard Shelby. The Alabama Republican and his former aides have a nice relationship that means more campaign cash for him, lucrative fees for them, and lots of our tax dollars being diverted to such recipients as the state’s university system. Here are some of the sordid details:
Since 2008, Alabama Sen. Richard Shelby has steered more than $250 million in earmarks to beneficiaries whose lobbyists used to work in his Senate office — including millions for Alabama universities represented by a former top staffer. In a mix of revolving-door and campaign finance politics, the same organizations that have enjoyed Shelby’s earmarks have seen their lobbyists and employees contribute nearly $1 million to Shelby’s campaign and political action committee since 1999, according to federal records. …Shelby’s earmarking doesn’t appear to run afoul of Senate rules or federal ethics laws. But critics said his tactics are part of a Washington culture in which lawmakers direct money back home to narrow interests, which, in turn, hire well-connected lobbyists — often former congressional aides — who enjoy special access on Capitol Hill.
ADA and the ‘Chipotle Experience’
The Chipotle Mexican Grill heralds its “Chipotle Experience,” in which customers can watch their food being made behind a glass partition. Now a Ninth Circuit panel (including famously liberal judges Stephen Reinhardt and Dorothy Nelson) has ruled that the “experience” violates the Americans with Disabilities Act, to quote the AP, “because the restaurants’ 45-inch counters are too high. The company now faces hundreds of thousands of dollars in damages.” The ruling arrives just in time for the ADA’s 20th anniversary, which, as the Washington Post notes, is serving as the occasion for a virtual binge of new regulation-making by the Obama Administration and Congress.
Online reaction to the Chipotle case is tending toward the negative if not incredulous, even at places like the San Francisco Chronicle (“Good Lord, people are complaining because they can’t see a taco, get a life.”) But it’s also worth noting this significant passage (via Ted Frank at Point of Law) from the court record that the Ninth Circuit panel had to overcome:
The [district] court found that [wheelchair-using complainant] Antoninetti had failed to show irreparable injury because he had not revisited either restaurant after Chipotle adopted its written policy and because his “purported desire to return to the Restaurants is neither concrete nor sincere or supported by the facts.” It also stated that Antoninetti’s “history as a plaintiff in accessibility litigation supports this Court’s finding that his purported desire to return to the Restaurants is not sincere. Since immigrating to the United States in 1991, Plaintiff has sued over twenty business entities for alleged accessibility violations, and, in all (but one) of those cases, he never returned to the establishment he sued after settling the case and obtaining a cash payment.”
It’s an open scandal, especially in states like California that offer enhanced penalties or liberal procedural rules, that serial complainants and their lawyers carve out profitable practices visiting dozens or hundreds of businesses and leveling ADA complaints that they then settle for cash. As a phenomenon, the ADA filing mill has much in common with other forms of baleful legal “entrepreneurship” such as patent trollery, mass “citizen suit” filings against small businesses and school districts over paperwork lapses, and — the most recent to emerge — copyright mills such as the recently formed RightHaven, which has begun to acquire the rights to old newspaper articles and then mass-file lawsuits demanding thousands of dollars from bloggers, mom and pop businesses, and others who’ve ill-advisedly reprinted the articles online without permission.
Note that the objection to the litigation-mill model does not in itself depend on there being anything improper about the underlying rights being asserted (even those who think patents and copyrights in general a fine thing are free to disapprove of their use as a troll predicate). Instead, conditions are often propitious for abuse when 1) statutory damages or fines are far out of line with actual damage to a complainant; 2) the cost of legal defense can much exceed the damages at issue; 3) oft-recurring fact patterns make it easy to mass-produce plausible fill-in-the-blank complaints; and 4) the law either awards “one-way” attorney’s fees to successful complainants, as does the ADA, or at least refuses to stop the award meter at the point when a defendant proffers a change in the offending practice and adequate compensation for the complainant’s actually sustained damages, if any. Promising avenues for reform may include redefining statutory damages down to non-jackpot levels; assessing attorneys’ fees against whichever side makes trial necessary by spurning a settlement in line with actual damages; and introducing “demand before suit” procedural stages meant to put defendants on notice of a claimed infringement.
Inadvertently or not, the new ruling does afford the public a clear look at one particular kind of assembly line, presided over by lawyers rather than restaurant employees. And unlike the kind you can watch behind the glass partition at Chipotle, there’s nothing appetizing about seeing this one in action.
Foundations Need to Invest More in Private Education and Choice
Charter schools are the hot new thing.
OK, they aren’t all that new. But many people who used to have blanket objections to any increase in school choice now support (some form of) charter schools. President Obama, and even AFT President Randi Weingarten, say they support “charter” schools. The guy who made Al Gore’s documentary, Sinners in the Hands of an Angry Planet, will soon release a film about choice and charter schools.
In the midst of the charter school hype, we need to remember that the private school system has been educating low-income kids longer, better, and more efficiently than charter schools. And charter schools are now sapping this tiny remaining redoubt of civil-society success and freedom in education.
Philanthropists who care about long-term, sustainable and dynamic improvement in the education system need to refocus. They need to pull back from the charter school mirage and invest in private school choice programs and private schools that are a proven, established success with at-risk children.
Fortunately, many philanthropists see the need to save private, often Catholic, schools for the poor:
Among his many achievements, [Robert W.] Wilson is the single largest benefactor of Catholic schools in the Archdiocese of New York. Since 2007, he has donated over $30 million to inner-city Catholic education. He is also an atheist… Wilson belongs to an elite order: non-Catholic donors who are the patron saints of inner-city Catholic schools.
Read the whole article by Christopher Levenick in Philanthropy magazine. Public charter schools are often better than the regular ones. But charter systems are a pale government reflection of the legacy and possibilities found in private education.
The Power of One Entrepreneur
The Institute for Justice has launched a new economic liberties program called “The Power of One Entrepreneur.” They have five detailed reports produced by successful local writers, highlighting five individual entrepreneurs.
The power of one entrepreneur, the reports explain, is the key to helping our nation recover from this economic slump and to restoring our inner cities and countless lives through honest enterprise. Together, they showcase the importance of economic liberty and the fact that countless people are fighting Big Government to secure their American Dream.
These reports do two important things:
First, they document the positive impact one single entrepreneur can have on those around him or her, not only by offering employment, but through charitable work and mentoring to grow other entrepreneurs in the community, thereby growing the economic pie.
Second, through tangible examples, they make the point that if the government wants to do something to help Americans in this “jobless recovery,” it can do one simple thing: Get out of the way so entrepreneurs like these can be free to create jobs for themselves and for others.
This is part of IJ’s laudable long-time effort to put a human face on the issue of economic liberty — the right to earn a living free from arbitrary and unnecessary government regulation.
One Step Closer to Legally Gambling Online?
The House Financial Services Committee voted 41-22 yesterday to report a bill legalizing online gambling out of committee and onto the House floor for a vote, should the Democratic leadership choose to pursue it (Wall Street Journal [$]). This is heartening news.
As I’ve written before, though, the ability to spend your time and money as you choose doesn’t come without a price, and indeed one of the reasons the bill is having more success than previous efforts is the realization by lawmakers (following the lead of their European brethren) that gambling could be a lucrative source of revenue in these fiscally frightening times. Tuesday’s New York Times had a good story on the EU experience, with one quote from a European gambling analyst making an excellent point about the true gambling addiction in society:
“I think the penny has dropped,” said Simon Holliday, an analyst at H2 Gambling Capital. “They deregulate a little bit, like what happens and deregulate more. The governments get more addicted to the tax than the players to the games.
Some lawmakers also support this legislation because they recognize that many leading online gambling firms are European — partly because of fewer restrictions that have allowed the firms to flourish– and seek to create “American jobs for American workers” by promoting a domestic online gaming industry. The NYT article offers some sobering words for them, too, by pointing out that the Europeans are way ahead in this field. Not that the national origin of the gaming firm should matter, of course.
HTs: Radley Balko and my colleague Kurt Couchman
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