Archive for May, 2011
End of an Era, Passing of an Age
Yesterday’s giants continue to exit the arena: I missed the news cycle on this, but two weeks ago Bill Rusher died at the ripe old age of 87.
Rusher was a conservative writer and activist, and the publisher of National Review in its first few decades. Although he mostly dropped off the public stage after retiring from NR in 1989, he had latterly been involved with such Cato-friendly groups as the Pacific Research Institute and Pacific Legal Foundation.
From the Wall Street Journal‘s obit-itorial:
In the early 1960s, Rusher and others built the foundation for what became Barry Goldwater’s successful run for the Republican Presidential nomination in 1964. While Goldwater lost, his candidacy signaled the conservative ascendancy within the GOP that culminated in Ronald Reagan’s election in 1980.
Rusher wrote a successful syndicated column for 36 years in which he exhibited his fundamental optimism about America and its purposes—even through the dark days of reckless government expansion after 2008. Having once thought Reagan should mount a populist, third-party challenge to the GOP in the 1970s, Rusher and the tea party were kindred spirits. He had a deep faith in the ability of the American people to regain their bearings after a political mistake.
He was also a man of great personal dignity and superb taste who we recall once offering us the very good advice that, “The best restaurant is the restaurant that knows you best.”
It is this last bit that has perhaps stuck most with me about the man, whom I met a few times in college because Rusher enjoyed mentoring young right-of-center writers. I remember well talking with him late into the night about how to balance intellectualism and activism, or more simply how to put ideas into action. Well into his 70s by then, Rusher had this cool, stylish charm, a lively mind behind a steely manner (and an impeccable wardrobe).
Not quite a household name any more even in conservative circles, Bill Rusher will certainly be missed in my household.
Obamacare on Appeal
As advocates gear up for the first appellate argument in the ongoing Obamacare lawsuits — Tuesday in Richmond — today marks an important milestone: the filing of two eloquent briefs responding to the government’s appeal of Judge Roger Vinson’s January ruling that found the individual mandate unconstitutional and non-severable, thereby striking the entire legislation.
These two briefs, one by 26 states (and for the first time signed by former solicitor general Paul Clement) and one by the private co-plaintiffs in that same Florida case (the National Federation of Independent Business and two individuals) present a full-throated defense of the basic principle upon which this country was founded: that the federal government is one of enumerated and limited powers whose primary goal is to preserve liberty. They describe exhaustively why that government cannot require people to buy goods or services as a means of regulating interstate commerce and why therefore the unprecedented individual mandate goes beyond what the Constitution authorizes. Indeed, forcing people to buy health insurance is neither a regulation of interstate commerce nor a constitutionally appropriate means of achieving such regulation.
If the Eleventh Circuit, which will hear argument June 8 in Atlanta, takes these arguments seriously – and adheres to the truism that the Constitution provides fixed limits on federal power — then the “linchpin” of Obamacare is doomed. Any ruling to the contrary, allowing the individual mandate to stand, would unleash an entirely novel and unbounded conception of federal power.
Cato will be filing our own brief a week from today. Georgetown law professor and Cato senior fellow Randy Barnett will not be on it, however, because he has joined the NFIB’s legal team — an exciting development, to be sure!
How Not to Criticize Medicare Vouchers
Over at The Incidental Economist, Austin Frakt challenges a couple of claims I made on NPR about Medicare reform. (Here’s how NPR reported my comments in print.)
My claims are pretty simple.
- If Medicare subsidizes enrollees by giving them a fixed amount of money, much like Social Security does, they would be more cost-conscious than they are under the current open-ended subsidy, because enrollees who avoid wasteful spending would themselves get to keep the savings. Put more plainly, people spend their own money more carefully than they spend other people’s money.
- Health insurers and health care providers would compete to serve these cost-conscious Medicare enrollees on the basis of both cost and quality. Prices would fall while quality improves.
I’m not really sure to what extent all this would occur under the Medicare reforms the House passed a couple of weeks ago, because we don’t yet know to what extent each enrollee’s subsidy would resemble a fixed amount of money.
Here’s what Frakt does with my claims:
[A]s I heard these words I wondered if we had any evidence on hand about the relationship between lower premium subsidies and health care cost inflation. Indeed we do! Premiums in the commercial market are subsidized by the government at a lower rate than those in Medicare. [Emphasis added.]
He then throws up the chart, shown below the jump, showing that for common benefits, the rate of growth in per-enrollee spending is “pretty similar” in Medicare and private insurance. He concludes: “With data like this, I think we need to reexamine some of our theories about what lower premium subsidies can do.”
House Leadership’s Transparency Leadership
Last week, House Speaker John Boehner (R-OH) and Majority Leader Eric Cantor (R-VA) wrote a letter to the House clerk calling for new data standards that will make Congress more open and accountable. Spot on.
The THOMAS legislative database was a huge improvement when it came online in 1995 at the behest of the new Republican Congress, but the Internet has moved on. Today, publishing text or PDF documents is inadequate transparency. It’s more important to make available the data that represent various documents and activities in the legislative process. “Web 2.0″ will use that data various ways to deliver public oversight.
I’ll have much more to say in the near future, but here are the kinds of things get to full transparency, which the House leaders’ letter appears meant to imply:
- Specific Formats: Documents and data must be published in specific formats that allow Web sites, researchers, and reporters to interpret and use text and data easily and automatically. The SEC recently began requiring businesses to report financial information in a format called eXtensible Business Reporting Language (XBRL). This will improve corporate transparency and enable investors to make better decisions. The public should have equally good information about government.
- Flagging/Tagging: Within these data formats, key information must be “flagged” or “tagged” to highlight the things that matter: spending proposals, agencies and programs affected by a proposed law, recipients of federal money, existing statutes that may be amended, and so on. Flagging/tagging will make the relevance of documents and information immediately apparent to various interests.
- Bulk Access and Real-Time Updates: Documents and information must be available in bulk, so that new users have full access, and it must be updated in real time, so the public can “see” changes as they happen. It also must be version-controlled so the “story” of a policy’s formation or execution can be told. The public should never have to learn what is in a bill after it passes.
- Authoritative Sources: The mishmash of data sources that now exist must be replaced by authoritative sourcing. Congress, the White House, federal agencies, and other entities must publish and maintain their documents and data. The public must know once and for all where the definitive versions of documents and data will be.
Disclosure—simply “putting bills online”—was the beginning of the legislative transparency project, not the end. The many transparency Web sites out there have the bills, but they don’t have the data they need to help the public get their government under control.
As I suggested some months ago, House Republicans are positioned to take the transparency mantle from President Obama and the Democrats. Web 2.0 thought leader Tim O’Reilly—no Republican cheerleader—has already called the race, Tweeting last week, “The ‘R’s in Congress are doing better on this than ‘D’s did.” Assuming action consistent with this letter, the House Republicans will indeed soon have the transparency lead.
Some Thoughts on Federal Rental Housing Assistance
Last week I participated on a panel on federal rental housing policy, organized by Harvard’s Joint Center for Housing Studies in conjunction with the release of their new report on conditions in the rental market. In their defense, the report does attempt to avoid offering policy prescriptions. But the report does come pretty close to suggesting that we spend more on federal rental housing assistance. In the post-housing bubble environment, many, myself included, have dared suggest that there’s nothing wrong with someone being a renter, and that maybe we pushed too many into homeownership.
But saying we overdid homeowneship is not the same as saying we ignored rental. In fact the federal government has spent massive amounts on rental housing, yet according to the new Harvard report, rent burdens have gotten worse over the last 50 years not better. While the report doesn’t take this step, I think we have to ask: if you’ve spent hundresds of billions of dollars on an issue and it then gets worse, maybe there’s something wrong with what you are doing?
Perhaps my friends on the Left (and/or in the real estate industry) don’t believe we’ve spend all that much on rental housing. Consider these facts: in nominal terms the sum of all money spent by HUD, which is almost exclusively rental or “community development,” has been close to a trillion dollars. By my estimate (based upon the American Housing Survey and the Residential Finance Survey) the current value of all rental housing in the US is about $3.6 trillion. So the federal taxpayer has paid enough to outright buy almost a third of all rental housing.
Also consider that if we took the approximately $50 billion we now annually spend on rental housing, we could pay 100% of the rent of the almost 4 million households currently paying the lowest rents. This translates to being able to pay all the rent for every family earning about $22,000 or less. If we choose to only pay 50% of their rent, we could serve another 2.5 million.
My point here is not to say we should spend all this money, for I still don’t see this as the proper role of the federal government; the point is that we already spend a huge amount. Now why might all this money not have made a huge difference in helping renters? Maybe because most of it gets eaten up by the providers. For instance a recent paper in Real Estate Economics estimates that only a third of the value of the Low Income Housing Tax Credit actually makes it to the renter in the form of lower rents. The remaining two-thirds goes to benefit the developers, owners and others who live off the process. So before we even think about spending more on federal rental assistance, how about making sure what we do spend actually goes to help the poor and not the special interests?
Bin Laden’s Death and the Debate over the U.S. Mission in Afghanistan
Osama Bin Laden’s death marks a significant achievement in the fight against al Qaeda. It also highlights the fact that our ostensible objective for continuing the war in Afghanistan has been achieved. Although some lawmakers have been quick to claim that bin Laden’s demise proves that our nation-building mission is showing signs of success, others recognize that this momentous achievement justifies scaling down our presence in Afghanistan. Indeed, rather than expansive counterinsurgency campaigns, targeted counterterrorism measures would suffice.
It is encouraging that Republican members of Congress are questioning the mission. Senator Richard Lugar (R-IN), ranking Republican on the Senate Foreign Relations Committee, expressed his concern yesterday:
[Senator Lugar] said Afghanistan no longer holds the strategic importance to match Washington’s investment. He cited recent comments from senior national-security officials that terrorist strikes on America are more likely to be planned in places like Yemen.
Lugar raised concerns that U.S. policy on Afghanistan is focused more on building up its economic, political and security systems. “Such grand nation-building is beyond our powers,” he said bluntly.
Most poignantly, he summed up the problem as such:
With Al Qaeda largely displaced from the country, but franchised in other locations, Afghanistan does not carry a strategic value that justifies 100,000 American troops and a $100 billion per year cost, especially given current fiscal constraints.
These realities have neither shifted the GOP establishment’s talking points on defense, nor the Obama administration’s “stay-the-course” policy in Afghanistan. Nevertheless, this debate, especially among Republicans, is important. As my Cato colleague Ben Friedman has pointed out in original research, the Tea Party Republicans that swept into office last November may have good instincts, but have done little to shift the overarching debate about the efficacy of nation-building. Perhaps increased calls for rethinking the mission will have to come from senior GOP types like Lugar. As my other Cato colleague, Gene Healy, trenchantly notes, “There was always something odd about conservatives jumping from ‘they hate us because we’re free’ to ‘if we make them free, then they won’t hate us.”
Cato scholars have been making the case for de-escalation from Afghanistan for the past several years. Hopefully, more Republicans will recognize, as most libertarians already do, that it is inconsistent to espouse talk of fiscal responsibility and limited government at home while engaging in social engineering and nation-building abroad. More republicans should recognize that there is nothing conservative about wasting taxpayer dollars on a mission that weakens America economically and militarily. As Cato founder and president Ed Crane has argued, it’s time for the GOP leadership to return to its non-interventionist roots.
Since 9/11, America’s mission in Afghanistan has evolved dramatically. It’s gone from punishing al Qaeda and the Taliban to paving roads and building schools. To imagine that the U.S.-led coalition can create a functioning economy and establish civilian and military bureaucracies through some “government in a box” highlights the ignorance and arrogance of our central planners in Washington.
Let’s hope that the landmark death of Osama bin Laden brings a swift end to our ongoing investment and sacrifice.
Hazy-Eyed Hunter Prepares to Fire on For-Profits
Yesterday, the U.S. Department of Education sent proposed — and highly controversial — “gainful employment” regulations to the Office of Management and Budget for review, the first step in the process of officially publishing them. The regulations — assuming they haven’t changed drastically from previous proposed versions — would limit the ability of students in vocational postsecondary programs to access federal financial aid if those programs produce debt burdens the regs deem too high, or salaries they deem too low. The exact details on what constitutes ”too high” and “too low” should be revealed soon.
The big problem with this is that it is aimed at easily abused for-profit schools while leaving the rest of waste-drenched higher education untouched. But another problem, the very real risk of bureaucratic bungling, also looms large. Indeed, a story out just today from California notes that the state greatly overestimated how much it would save by cutting Cal Grant eligibility for students at schools that showed up on a recent U.S. Department of Education list of institutions with high three-year loan default rates. The problem: The Education Department had accidentally calculated three-year-and-three-month rates, significantly overstating defaults. In fairness to the Department, it did say the list was unofficial, so California officials also bear a lot of the blame; but it sure doesn’t bode well that the Department would publish something so flawed.
There is a much more effective, and less dangerous, way to hold schools accountable than to have the federal government set blanket, hyper-politicized rules and try to enforce them. It is to have customers consume higher education using their own money rather than having Washington send tens-of-billions of inflation-fueling, extravagance-enabling dollars to students and schools every year. The problem is, that would just make it too hard to buy votes by falsely promising great education for all.
Wednesday Links
- Osama bin Laden’s death gives us a chance to end what might have become an era of permanent emergency and perpetual war.
- The Cold War ended–what are we doing in Korea?
- Two cheers for President Obama for ending eight (well, three) tax breaks to oil companies.
- Does Osama bin Laden’s death mean an end to U.S.-Pakistan relations?
Please join us next Tuesday, May 10 at 4:00 p.m. Eastern for a Cato Book Forum on America’s Allies and War: Kosovo, Afghanistan, and Iraq, by University of Mary Washington political scientist Jason W. Davidson. Council on Foreign Relations senior fellow and Georgetown University international relations professor Charles Kupchan will join Professor Davidson in a discussion of the book and its themes, particularly U.S. relations with NATO allies, moderated by Cato director of foreign policy studies Christopher A. Preble. Complimentary registration is required of all attendees by Monday, May 9 at noon Eastern. We hope you can join us in person, but we encourage you to watch online if you cannot attend personally.
Seven Reasons to Oppose Higher Taxes
As I have explained elsewhere, tax increases are a bad idea – unless you favor bigger government.
And I’ve already added my two cents to the tax debate between Senator Coburn and Grover Norquist regarding the desirability of higher taxes.
So it won’t surprise anyone to know that I fully agree with this new video from the Center for Freedom and Prosperity, which offers seven reasons why higher taxes are a bad idea.
The video is narrated by Piyali Bhattacharya of Young Americans for Liberty, and here are her seven reasons.
- Tax increases are not needed
- Tax increases encourage more spending
- Tax increases harm economic performance
- Tax increases foment social discord
- Tax increases almost never raise as much revenue as projected
- Tax increases encourage more loopholes
- Tax increases undermine competitiveness
I think reasons #1, #2, #3, and #5 are the most powerful.
To a considerable degree, my video on balancing the budget makes the same point as reason #1 about why higher taxes are unnecessary. Simply stated, balancing the budget merely requires a modest degree of fiscal discipline, such as capping spending so it only grows 2 percent per year.
And if tax increases are not needed to balance the budget, then the only purpose they serve is to facilitate a bigger burden of government spending, which is why I like reason #2.
And reason #3 is standard economic analysis, making the common-sense point that if you punish something, you get less of it. This is why it is so misguided to impose higher tax rates on work, saving, investment, and entrepreneurship.
Last but not least, reason #5 is just another way of saying that the Laffer Curve is real, as I explain in this tutorial.
More HUD Community Development Duds
Local officials, like their federal and state counterparts, spend other people’s money. Policymakers are naturally unlikely to spend other people’s money as carefully as they would their own. This situation is exacerbated when local officials spend money obtained from federal taxpayers. At least when local taxpayers foot the bill, they have an incentive to keep an eye on how their money is spent. That incentive is largely nonexistent when the money comes from Washington.
HUD community development programs illustrate what happens when the federal government severs the relationship between local officials and local taxpayers. Originally targeted to large cities in decline, community development funding is spread widely to communities rich and poor, large and small.
Local officials love these programs because they amount to a free lunch. As a result, they lobby Washington hard for these subsidies, which means federal policymakers generally only hear wonderful tales of the “economic growth” and “job creation” fostered by the programs. However, a Cato essay on HUD community development programs explains that in addition to complexity and wasteful bureaucracy, these programs are susceptible to financial abuses.
Recent stories in the news provide further evidence.
First, years of mismanaging federal community development funds have caught up to the City of Buffalo. The Buffalo News reports that a HUD inspector general audit says the city “could not provide assurance that more than $20.1 million in transactions was properly accounted for.” According to the article, the audit findings are not surprising:
An investigation published in The News in 2004 found the city had frittered away much of its block grant money through parochial politics and bureaucratic ineptitude.
More than half the spending went to “soft costs” that include covering bad loans, paying city salaries and subsidizing an overblown network of neighborhood agencies, The News found. Relatively little went to brick-and-mortar projects, and what was spent to revitalize downtown and neighborhoods was haphazard, with money sometimes going to risky and futile projects.
The mayor and Common Council failed to make major reforms in the program in recent years, and problems have persisted. Two years ago, a HUD monitoring report found continued shortcomings that included too much spending on bureaucrats, questionable financing for upscale housing developments and sloppy fiscal management of several programs.
Next, LA Weekly reports that the City of Los Angeles plans to give $1 million in federal community development funds to the global architecture firm designing the downtown’s proposed NFL football stadium:
Gensler plans to move from Santa Monica to downtown L.A., where it will use the $1 million in federal community-development block grant funds to create a hip, new atmosphere for its relocated employees at the “jewel box,” a three-story building nestled between two skyscrapers at City National Plaza.
Unfortunately, the “hip, new atmosphere” paid for by federal taxpayers probably won’t be the “job creator” that city officials are claiming:
[Mayor] Villaraigosa and City Council members since February have claimed that enticing Gensler from Santa Monica to downtown L.A. is a job creator. But that’s debatable. Some temporary jobs will be created for the jewel box renovation, but Gensler is moving its offices just 20 miles. Many economists would describe L.A.’s action as merely shifting jobs within an intricately intertwined economic area.
A HUD official called the situation “entirely healthy.”
Finally, HUD recently informed the City of Montebello (California) that it had uncovered 31 violations regarding the city’s use of HOME program funds, which are to be used for affordable housing. According to the Whittier Daily News, the report “was so damning it brought interim city administrator Peter Cosentini to tears”:
Last year, HUD demanded that Montebello repay $1.3 million because the city gave a developer HOME money to help build a housing project with affordable units and reported to the federal agency the project was complete, but construction hasn’t started. And a key document submitted to HUD appeared to have been forged, according to the report.
In February, HUD notified city officials that Montebello must also repay nearly $900,000 it used to purchase another parcel of land. The city failed to give HUD needed documents on the property acquisition, including an appraisal, documentation of expenditures and current ownership, according to a Feb. 18 letter from [HUD official] Vasquez to the city.
Cosentini responded in writing, saying city staff has been sent to training as recommended by HUD. Montebello is also conducting an internal investigation into the possible document forgery. The city’s internal investigation of the $1.3 million has been slowed because the developer isn’t cooperating and is “stonewalling” city staff, he wrote. Cosentini also asked for more time to repay the money.
But the city missed a March 1 deadline to submit a repayment plan, according to a letter from Vasquez. And HUD will seek an additional repayment of $2.7 million, Cosentini wrote in the memo.
Take heart federal taxpayers – Montebello city bureaucrats are being “sent to training” per HUD’s recommendation!
A Message From The Ivory Tower’s Friendly Neighborhood ‘Reactionary’
There is a reason “ivory tower” has a negative connotation, evoking images of effete snobs walled away in ivory opulence as they look down on the commoners and demand outsized respect. The image, unfortunately, is occasionally accurate for individual academics, and almost always so for the whole of academia, which is funded by massive subsidies taken from taxpayers, but walled off by claims that no price can or should ever be affixed to the “public good” it produces. Add to this its professorial residents often demanding limitless freedom — and job security – to say whatever they want about such evil pursuits as “big business” that generate the tax dollars that keep the tower cushy and its jobs secure, and disdain for the tower is well deserved.
The distasteful side of academia is on display in an article by journalism professor Robert Jensen, in which he responds to a recent Texas Public Policy Foundation conference that he attended, and in which I participated. And by “I,” I mean Neal McCluskey, a “reactionary” ideologue suffering from “libertarian fantasies,” to use the good professor’s insightful and even-handed characterization of me and my positions. He also throws in a guaranteed lefty applause line about the free market causing the recent economic downturn — who the heck are Fannie and Freddie? — and in so doing displays why many people see academia not as a haven for objective truth-seekers, but a castle for axe-grinders who want to place themselves high above the people and institutions they just don’t like.
This would perhaps be palatable if our betters sought to fund their lofty positions through the voluntary contributions of others. But many don’t. No, they insist that they should be able to do and say whatever they want using money extracted from taxpayers — including taxpayers they plan to rhetorically assault — whether those taxpayers like it or not. In an equal society — which so many of them, including Prof. Jensen, say they’re defending – they insist that they should be most equal of all.
Perhaps the most ironic part of Prof. Jensen’s commentary is that in his apparent haste to ignore my message and demean the messenger, he missed that he and I are likely in agreement about whether No Child Left Behind-esque rules and regulations should be applied to colleges and universities. It seems he just infers that my arguing that ending subsidies is the key to meaningful accountability means that I support such efforts as those being pitched by TPPF to impose transparency and accountability on public Texas colleges. I offered no such support, and though I would like to see TPPFs proposals tried in some schools, I would never demand that they be imposed by government. Unfortunately, it appears Prof. Jensen just didn’t do due journalistic diligence by researching what I’ve written on these topics before branding me a bad guy, including taking in my opposition to standardized testing proposals that emanated from the Spellings Commission, or, for that matter, reading my writings on NCLB.
In the end, all I want is for professors to be on the same starting level as the average person: having to get the voluntary support of others to do their vaunted work. But too many academics, like Prof. Jensen, don’t seem to care for that deal. They want to take your money whether you like it or not, lest they lose the ability to tell you how terrible you are.
Can We Rely on Inflation Expectations?
The Wall Street Journal has pointed out that in his recent press conference Federal Reserve Chair Ben Bernanke used the words “inflation expectations” (or some variation) 21 times. His argument is that we need not worry about inflation because we will see it coming, and then the Fed will do something about it. Such an argument relies heavily on the ability of inflation expectations to predict inflation. Which of course raises the question, just how predictive are inflation expectations?
The graph below compares inflation, as measured by CPI, and inflation expectations, as measured by the University of Michigan consumer survey, the longest times series we have on inflation expectations.
Clearly the two move together. For instance, the correlation between current inflation and expectations is almost 1 (its 0.93), while the correlation between inflation and actual inflation a year later is slightly less at 0.81. The relationship declines as we move further into the future. So yes, consumer expectations appear a reasonable predictor of the direction of inflation. However, they don’t appear to be a great predictor of the magnitude or the frequency of changes. For instance, the standard deviation of actual inflation is about twice that of expected inflation. As one can easily see from the chart, expectations are quite sticky and rarely pick up the extremes. During the late 1970s and early 1980s, expectations did move up, but then never reached the heights actually experienced, nor did consumers ever actually expect deflation during the recent financial crisis (if we are going to base policy on expectations, we should at least be consistent about it).
For about the last decade we also have market based measures of inflation, based upon inflation-indexed bonds. The TIPS measure tends to be less correlated with actual inflation, but does a better job of capturing the extremes. Although interesting enough, TIPS was already predicting that deflation would be short-lived before we even experienced any deflation.
The point is that while expectations are useful for qualitatively purposes, they do not have a strong record of recording the extremes. Given that most of us expect some positive level of inflation, the real debate is over how much. In this regard, either survey or market-based expectations are likely to be both a lagging indicator and an under-estimate of actual inflation.
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