Archive for February, 2011
President Delivers Same Zero-Sum Message on Jobs to U.S. Chamber
In his speech at the U.S. Chamber of Commerce yesterday, President Obama tried to make nice with U.S. business. While the speech contained some positive elements about promoting trade and a lower corporate tax rate, the president also pounded the tired theme that we are locked in a battle with other countries over a fixed number of jobs.
Notice how the president framed the otherwise good news of expanding domestic production:
Right now, businesses across this country are proving that America can compete. Caterpillar is opening a new plant to build excavators in Texas that used to be shipped from Japan. … A company called Geomagic, a software maker, decided to close down its overseas centers in China and Europe and move their R&D here to the United States. These companies are bringing jobs back to our shores. And that’s good for everybody.
The strong implication is that U.S. companies add jobs at home by closing production facilities abroad and thus “bringing jobs back to our shores.” This kind of win-lose, zero-sum accounting is out of step with the reality of our global economy. More often, when U.S. multinationals ramp up production and hiring abroad, they do the same at their factories and offices in the United States, and vice versa.
Take Caterpillar, the global equipment company based in Peoria, Ill. According to its recent quarterly earnings report, the company added 19,000 jobs to its global workforce in 2010, 7,500 of those in the United States. This is common practice among U.S. multinationals.
As I noted in my 2009 Cato book Mad about Trade, studies show that the jobs added by U.S. multinationals at home and abroad are strongly and positively correlated. More production and sales abroad typically require the hiring of more managers, accountants, engineers and production workers at the parent company’s facilities in the United States.
Despite the president’s rhetoric, the creation of jobs in today’s global economy is a win-win, positive sum proposition.
Cost Overruns at the National Archives
A new report from the Government Accountability Office finds that the National Archives and Records Administration’s Electronic Records Archive project is headed for major cost overruns. Initiated in 2001, the project was originally projected to cost $745 million but could end up costing $1.4 billion. The project’s development phase was supposed to be completed by September, but the GAO estimates that it won’t be completed until 2017.
The purpose of the Electronic Records Archive project is to create a digital system for gathering and storing government records that would be accessible to the public. In 2005, the National Archives selected Lockheed Martin to develop the system. Unfortunately, the GAO report makes it clear that the National Archives hasn’t been up to the task of properly overseeing the project.
The examples of shoddy management are too numerous to recount. For instance, the National Archives was supposed to follow a system for managing the project’s costs and progress called earned value management (EVM). However, the GAO found “anomalies” in the monthly reports submitted to the National Archives from Lockheed Martin that are crucial to EVM.
From the report:
- Planned work was removed from the [performance measurement] baseline without also removing its corresponding budget. This is an inappropriate EVM practice and results in the appearance of favorable cost and schedule performance trends.
- Work was shown as fully completed in one month’s report but, in subsequent reports, the same work was reported as less than 100 percent complete. For example, Increment 3 development work was reported as 100 percent complete in July 2009, but 2 months later, in September 2009, it was reported as 10 percent complete. In another example, program support activities for Increment 3 were reported as 100 percent complete in August 2009, but in the subsequent month as 49 percent complete.
- Dollars were reported as spent in a given month, but no work was reported as scheduled or completed.
The GAO says that National Archives and Lockheed Martin officials “provided justifications for these anomalies…. However, these justifications were not always valid.”
Cost overruns in government are not anomalies. In fact, as a Cato essay on government cost overruns demonstrates, they occur all too frequently. The reason is simple:
People tend not to spend other people’s money as carefully as they spend their own. In governments, policymakers and administrators deal with large amounts of other people’s money, and so wasteful spending is a big problem…. Cost overruns are illustrative of the persistent failures of federal management and provide one justification to downsize the government.
Occupational Licensing: It Isn’t Just for Doctors and Lawyers Any More
“Cat groomers, tattoo artists, tree trimmers and about a dozen other specialists across the country . . . are clamoring for more rules governing small businesses,” reports the Wall Street Journal in a front-page story today. “They’re asking to become state-licensed professionals, which would mean anyone wanting to be, say, a music therapist or a locksmith, would have to pay fees, apply for a license and in some cases, take classes and pass exams.” And despite all the talk about deregulation and encouraging entrepreneurship, “The most recent study, from 2008, found 23% of U.S. workers were required to obtain state licenses, up from just 5% in 1950,” according to Morris Kleiner of the University of Minnesota.
The Cato Institute has been taking on this issue for decades. In 1986 Stanley Gross of Indiana State University reviewed the economic literature on the impact of licensing on cost and quality. Kleiner wrote in Regulation in 2006:
Occupational regulation has grown because it serves the interests of those in the occupation as well as government. Members of an occupation benefit if they can increase the perception of quality and thus the demand for their services, while restricting supply simultaneously. Government officials benefit from the electoral and monetary support of the regulated as well as the support of the general public, whose members think that regulation results in quality improvement, especially when it comes to reducing substandard services.
Adjunct scholar Shirley Svorny noted that even in the medical field, “licensure not only fails to protect consumers from incompetent physicians, but, by raising barriers to entry, makes health care more expensive and less accessible.” David Skarbek studied the temporary relaxation of licensing requirements in Florida after Hurricanes Katrina and Frances and concluded that Florida should lift the rules permanently. In his book The Right to Earn a Living: Economic Freedom and the Law, Timothy Sandefur devotes a chapter to “protectionist” legislation such as occupational licensing.
On Egypt’s Transition
Today POLITICO Arena asks:
At his press conference this afternoon, White House Press Secretary Robert Gibbs distanced the Obama administration from former Egypt envoy Frank Wisner’s suggestion over the weekend that Hosni Mubarak should stay in power as Egypt transitions to a new government. Was Wisner, a former U.S. ambassador to Egypt, right about that and about the potential for a power vacuum?
My response:
Wisner was half right, but on the Mubarak half he was almost certainly wrong. Transitions are messy — at best. Ask the French about theirs two centuries and more ago. Occasionally they’re done pursuant to existing constitutions. Ours from the Articles of Confederation to the Constitution wasn’t, despite which it wasn’t all that messy. We were lucky. We had a relatively healthy culture and strong leaders, even if the early years were often touch and go, as we sometimes forget.
It appears, from press accounts, that the current Egyptian constitution does not provide for the kind of transition that many would like to see. If so, then extra-constitutional measures will need to be taken, including perhaps the drafting and ratification of a new or at least an interim constitution, or more likely some less formal arrangement through which interim authority can be brought into being with a semblance of legitimacy about it – whether a new government or a new constitution and ratification process. A simple call for elections is too simple: by whom, under what procedures, to fill what offices, in what institutions?
All of this is where politics in its most elemental form comes to the fore, for better or worse, as the French saw to their horror. It’s the ultimate test of a culture. So Wisner was right about “the potential for a power vacuum” — although in Egypt the army is likely to fill that vacuum — and in recognizing that a vacuum should be avoided, if possible. But he was likely wrong to suggest that Mubarak should fill that vacuum or serve as a transitional figure since it appears that he no longer has the credibility to do so. Ideally, leaders with credibility need to emerge, and soon.
Four Reasons Why Big Government Is Bad Government
A new video from the Center for Freedom and Prosperity gives four reasons why big government is bad fiscal policy.
I particularly like the explanation of how government spending undermines growth by diverting labor and capital from the productive sector of the economy.
Some cynics, though, say that it is futile to make arguments for good policy. They claim that politicians make bad fiscal decisions because of short-term considerations such as vote buying and raising campaign cash and that they don’t care about the consequences. There’s a lot of truth to this “public choice” analysis, but I don’t think it explains everything. Maybe I’m an optimist, but I think we would have better fiscal policy if more lawmakers, journalists, academics, and others grasped the common-sense arguments presented in this video.
And even if the cynics are right, we are more likely to have good policy if the American people more fully understand the damaging impact of excessive government. This is because politicians almost always will do what is necessary to stay in office. So if they think the American people are upset about wasteful spending and paying close attention, the politicians will be less likely to upset voters by funneling money to special interests.
For those who want additional information on the economics of government spending, this video looks at the theoretical case for small government and this video examines the empirical evidence against big government. And this video explains that America’s fiscal problem is too much spending rather than too much debt (in other words, deficits are merely a symptom of an underlying problem of excessive spending).
Last but not least, this video reviews the theory and evidence for the “Rahn Curve,” which is the notion that there is a growth-maximizing level of government outlays.
The Feds’ Squeeze on Farmstead Cheese
This weekend the Washington Post and New York Times took a closer look at a development mentioned in this space a while back and in a related Cato audio, namely growing federal pressure on small producers of artisan and farmstead cheeses. Here’s the Post:
….artisanal cheesemakers, and their boosters in the local-food movement, say they are being unfairly targeted. They say the FDA does not understand their craft and is trying to impose standards better suited for industrial food companies. …
Listeria is ubiquitous in the environment, but the FDA has a zero-tolerance rule for it in ready-to-eat food such as cheese. If the bacteria are present, the food is considered adulterated and cannot be sold. Some countries, including cheese-loving France, tolerate minute amounts of listeria in food.
Why can’t we in America enjoy at least as much freedom at our dinner tables as the French?
Many artisan cheese producers favor the use of raw (unpasteurized) milk and the rules on that subject are coming in particular to (as it were) a non-boil. The Food and Drug Administration has long required that cheeses made from raw milk be aged for 60 days in hopes of killing all potentially harmful bacteria. Trouble is, it’s been known for a while that 60 days is not long enough to guarantee that the survival rate of such bacteria is 0.00000 percent. Here’s the Times:
The F.D.A. has not tipped its hand [on its review of the aging rule], but some in the industry fear that raw milk cheese could be banned altogether or that some types of cheese deemed to pose a higher safety risk could no longer be made with raw milk. Others say they believe the aging period may be extended, perhaps to 90 days. That could make it difficult or impossible for cheesemakers to continue using raw milk for some popular cheese styles, like blue cheese or taleggio-type cheeses, that may not lend themselves to such lengthy aging.
“A very important and thriving section of the American agricultural scene is in danger of being compromised or put out of business if the 60-day minimum were to be raised or if raw milk cheeses were to be entirely outlawed,” said Liz Thorpe, a vice president of Murray’s Cheese, a Manhattan retailer where about half the cheese is made with raw milk.
As Virginia Postrel pointed out the other day in a Wall Street Journal piece, the artisan food folks are relatively lucky: “proponents of small-scale farming are organized, ideological, and well represented in the elite media”. Other producers victimized by overreaching regulation have much more trouble getting their voices heard in New York and Washington. That’s one reason small food producers were able to achieve at least a limited and modest carve-out in the recent federal food safety bill, while small producers of children’s apparel and other craft goods continue to flounder without relief under the impossible strictures of CPSIA.
Speaking of the Times, I think it sums up everything wrong with the world that Mark Bittman has quit his stellar food column to start a NYT politics column that begins with a “manifesto” whose planks include the following public policy proposal:
Encourage and subsidize home cooking. (Someday soon, I’ll write about my idea for a new Civilian Cooking Corps.) When people cook their own food, they make better choices.
Talk about artists in uniform. Also speaking of the Times, reporter Sheryl Gay Stolberg quotes me today on Wal-Mart’s nutrition deal with Michelle Obama, which takes a series of changes the giant retailer might well have been considering anyway for market reasons, rolls it together with some long-pursued public policy objectives like getting the opportunity to open stores in big cities despite union resistance, and clothes it all in a First Lady endorsement. Clever, no?
TSA Unionizing
Worst news I’ve heard lately, via The New York Times:
Seeking to end a debate that has brewed for nearly a decade, the director of the Transportation Security Administration announced on Friday that a union would be allowed to bargain over working conditions on behalf of the nation’s 45,000 airport security officers, although certain issues like pay will not be subject to negotiation.
Sen. Roger Wicker (R-Miss.) has proposed an amendment to the FAA reauthorization bill that would prohibit TSA workers from collective bargaining. Wicker’s proposal doesn’t go far enough. At the least, the decision to halt privatization of airport security should be reversed. Ideally, the TSA would be scrapped or reduced to merely inspecting the performance of airport security provided by the airports, not the government.
I doubt that allegations of TSA screener abuse are going to be dealt with better in a unionized workplace. I’m reminded of Sal Culosi’s murder. The Fairfax, Virginia SWAT officer that had a negligent discharge into Culosi’s chest at point blank range received a slap on the wrist, which was too much for the police union. And he killed a compliant suspect in an unnecessary SWAT raid. It seems a safe bet that your complaint about a pat-down gone too far will face additional resistance from TSA unions standing up for that agency’s bad apples.
Rep. Hanna’s Corporate Tax Cut
Rep. Richard Hanna is one of the many new members of Congress with a no-nonsense business background. He is determined to move the GOP in the direction of major tax and spending reforms. When I chatted to the congressman, he told me that he had already read my Global Tax Revolution, so he will be well-armed in tackling business tax reform!
Hanna is off to a good start with his “American Competitiveness Act,” which would chop the federal corporate tax rate from 35 percent to 25 percent. He notes that “the average rate in the Organization for Economic Cooperation and Development countries is just over 25 percent, meaning the effective U.S. corporate tax burden, when state and local taxes are considered, can be 50 percent higher than some of our developed competitors, rendering our companies and workers less competitive.”
In his State of the Union address, President Obama said that he is willing to cut the corporate tax rate. So corporate tax reform could be the 2011 version of the Clinton-GOP welfare reforms of 1996. That is, a major pro-market success made possible by a liberal president moving to the pragmatic center.
Upcoming: On February 23, Cato will release new estimates of corporate “effective” tax rates by tax scholars Jack Mintz and Duanjie Chen. The study will shed further light on the dangerous uncompetitiveness of the U.S. corporate tax system.
The Current Wisdom: The Short-Term Climate Trend Is Not Your Friend
The Current Wisdom is a series of monthly posts in which Senior Fellow Patrick J. Michaels reviews interesting items on global warming in the scientific literature that may not have received the media attention that they deserved, or have been misinterpreted in the popular press.
The Current Wisdom only comments on science appearing in the refereed, peer-reviewed literature, or that has been peer-screened prior to presentation at a scientific congress.
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It seems like everyone, from exalted climate scientists to late-night amateur tweeters, can get a bit over-excited about short-term fluctuations, reading into them deep cosmic and political meaning, when they are likely the statistical hiccups of our mathematically surly atmosphere.
There’s been some major errors in forecasts of recent trends. Perhaps the most famous were made by NASA’s James Hansen in 1988, who overestimated warming between then and now by a whopping 40% or so.
But it is easy to get snookered by short-term fluctuations. As shown in Figure 1, it is quite obvious that there has been virtually no net change in temperature since 1997, allowing for the fact that measurement errors in global average surface temperature are easily a tenth of a degree or more. (The magnitude of those errors will be considered in a future Current Wisdom).
Figure 1. Annual global average surface temperature anomaly (°C), 1997-2010 (data source: Hadley Center).
Some who are concerned about environmental regulation without good science have seized upon this 13-year stretch as “proof” that there is no such thing as global warming driven by carbon dioxide. More on that at the end of this Wisdom.
Similarly, periods of seemingly rapid warming can prompt scientists to see changes where there aren’t any.
Consider a landmark paper published in 2000 in Geophysical Research Letters by Tom Karl, a prominent researcher who is the head of our National Climatic Data Center (NCDC) and who just finished a stint as President of the American Meteorological Society. He couldn’t resist the climatic blip that was occurred prior to the current stagnation of warming, namely the very warm episode of the late 1990s.
Cooler heads at the time noted that it was an artifact of the great El Nino of 1997-98, a periodic warming of the tropical Pacific that has been coming and going for millions of years.
Nonetheless, the paper was published and accompanied by a flashy press release titled “Global warming may be accelerating.”
What Karl did was to examine the 16 consecutive months of record-high temperatures (beginning in May, 1997) and to calculate the chance that this could happen, given the fairly pokey warming rate—approximately 0.17°C (0.31°F) per decade, that was occurring. He concluded there was less than a five percent probability, unless the warming rate had suddenly increased.
Peace by the Numbers
If you follow the news, you might never guess that we’re living in a remarkably peaceful era. But we are. The long-term trends say that war is on the decline—combat fatalities, too. If we value world peace, we shouldn’t be complaining. We should be figuring out why these things are happening—and asking how we can keep them going.
Peace, of course, doesn’t often make the news. There’s nothing dramatic to report. Peace doesn’t explode. It doesn’t kill people. It makes for lousy TV.
I’m hoping, however, that peace makes a good topic at Cato Unbound. This month’s lead essay is by Andrew Mack, director of the Human Security Report Project at Simon Fraser University. If we live in a more secure world, he asks, why is it?
Please join us throughout the month for an empirical discussion of peace and war, the demographics of each, and what it is that makes our era an unusually peaceful one.
Profits Do Oft Disprove Jesters
A new study of Sweden’s nationwide private school choice program reveals that both non-profit and for-profit private schools outperform state-run schools. And, after the most comprehensive set of controls for confounding variables, they do so by an almost identical (and highly statistically significant) margin.
Is there any reason, then, to prefer one form of private organization over the other? Yes. While non-profit private schools have tended to increase the size of their waiting lists in response to growing demand, their for-profit counterparts have done what all commercial enterprises would do in that circumstance: they’ve grown.
For more insights on this crucial distinction, have a look at Peje Emilsson’s presentation from our “Cloning Superman” event, which was broadcast on CSPAN.
If you want more good schools and fewer bad ones, make it easier for entrepreneurs and investors to team up with great educators, and let them earn profits or suffer losses in direct proportion to their ability to serve children.
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