Archive for July, 2011

Interplanetary Greatness Conservatism

Posted by Gene Healy

My Washington Examiner column this week is on the final flight of the Space Shuttle, and what looks to be the withering away of the manned space program. In 2004, President Bush announced plans for a moonbase and an eventual Mars mission. But last year President Obama effectively cancelled the moonbase, and has exhibited little desire to liberate Mars. That’s good news, I argue:

“We are retiring the shuttle in favor of nothing,” Michael Griffin, Bush’s NASA administrator, wailed to the Washington Post recently.

Here, as usual, “nothing” gets a bad rap. I’ll be “in favor of nothing” until the advocates of federally funded spaceflight can come up with an argument for it that doesn’t make me spray coffee out my nose.

NASA’s Griffin failed that test in 2005, when he gave an interview to the Washington Post insisting it was essential that “Western values” accompany those who eventually “colonize the solar system,” because “we know the kind of society we would get if you, for example, carry Soviet values. That means you want a gulag on Mars. Is that what you’re looking for?”

Well … is it, punk?

When you strip away the few half-hearted “practical” arguments space partisans offer (it turns out that the space program didn’t even give us TANG, by the way) you’re mostly left with sentimental piffle. Listening to some of them, I’m half-tempted to mount a First Amendment challenge to the space program as an unconstitutional establishment of religion.

A 2008 report from MIT on “The Future of Human Spaceflight” argued that federal funding was justified as a means to promote “an expansion of human experience, bringing people into new places, situations and environments, expanding and redefining what it means to be human.” Those are *scientists* making that argument. But if your best explanation for why spaceflight is a public good gets into “sweet mystery of life” territory, then maybe you don’t have a very good argument for public funding.

Unfortunately, President Obama didn’t actually kill funding for human spaceflight. We’re now embarked on a public-private partnership, with NASA dollars flowing to companies like Space X. In fact, Obama has publicly pledged to seek slight increases in NASA’s budget.

But whether it’s done via a “government-business partnership” or not, there’s no reason we should be funding manned space exploration at all.

This is another thing President Eisenhower got right, incidentally:

he “would not be willing,” he said, “to spend tax money to send a man around the moon . . . There is such a thing as common sense,” he said, “even in research.” A moon project would be just “a stunt.”

But, since federally funded human spaceflight is a massive, “heroic,” allegedly inspiring but ultimately senseless government crusade, it’s no surprise, I guess, that neoconservatives love it. And nobody loves it more than Charles Krauthammer. Here he is in 2007, waxing rhapsodic about “the music of the spheres.”:

You should feel something when our little species succeeds in establishing new life in a void that for all eternity had been the province of the gods. If you don’t feel that, you are—don’t take this personally—deaf to the music of our time.

Look up, Krauthammer urged spacefans in 2009, after it had become clear that Barack Obama lacked “Kennedy’s enthusiasm” to boldly go, etc. “That is the moon,” Krauthammer declared, and “for the first time in history,” it had become “a nightly rebuke.” This is the burden of the Interplanetary Greatness Conservative: the moon—the very moon!—mocks you.

Personally, I’m deaf to “the music of the spheres.” But I’m all for the efforts of private entrepreneurs who can hear it. If people want to advance space exploration on their own dime and at their own risk, more power to them. And the government should neither help nor hinder them.

As Central Falls Falls

Posted by Walter Olson

The New York Times has an article today on the plight of Central Falls, Rhode Island, a 19,000-population industrial city that may declare bankruptcy under the fiscal weight of $80 million in pension obligations for police and fire officers. Unlike some coverage of municipal fiscal woes, this one does not dance around the way some of the problem originates in misguided labor policy:

The city, just north of Providence, is small and poor, but over the years it has promised police officers and firefighters retirement benefits like those offered in big, rich states like California and New York. These uniformed workers can retire after just 20 years of service, receive free health care in retirement, and qualify for full disability pensions when only partly disabled.

“Promised” is a word of art here, because the city wasn’t really making all of these concessions on a voluntary basis, as its negotiator explains:

state law called for binding arbitration, which for many years was a clubby process that emphasized comparable benefits all across the state more than any city’s ability to pay.

“Binding” arbitration, just to be clear, does not mean that the city agreed beforehand to settle disputes with the unions by way of arbitration; it means that state law imposed an arbitrator’s edict whether city managers ever signed up for the arbitration route or not. It thus differs from the contractually specified arbitration upheld lately in consumer contexts by the U.S. Supreme Court in AT&T v. Concepcion, a decision assailed by many of the same politicos who see no problem with genuine mandatory arbitration in the labor context.

The crisis in municipal finance wrought by binding public-sector arbitration and related laws comes as no surprise to readers who remember Cato’s excellent 2009 study “Vallejo Con Dios: Why Public Sector Unionism Is a Bad Deal for Taxpayers and Representative Government” by Don Bellante, David Denholm, and Ivan Osorio. (The California city of Vallejo declared bankruptcy in 2008 following the failure of negotiations with police and fire unions over unsustainable compensation.)

One point the otherwise thorough Times article omitted: many politicians in Washington have worked for years to impose a Central-Falls-like legal climate on states and localities lucky or farsighted enough to have avoided one in the past. During last fall’s lame duck session, then-Majority Leader Harry Reid (D-Nev.) tried to push through the truly appalling Public Safety Employer–Employee Cooperation Act, which not only would have forced police and fire unionization on reluctant states and localities but also provided that in case of impasse (quoting Heritage) “States would have to provide a dispute resolution mechanism, such as binding arbitration.” And the misnamed Employee Free Choice Act (EFCA), a priority of President Obama during his first years in office, would have imposed binding arbitration on the private sector. Central Falls may now be hurtling toward the waterfall, but how many other communities are just one political shove away from plunging into the same fiscal rapids?

Put Federal Flood Insurance Out of Its Misery

Posted by Mark A. Calabria

The House of Representatives is scheduled this week, as early as today, to consider an extension and “reform” of the National Flood Insurance Program (NFIP), administered by FEMA. Since Hurricane Katrina in 2005, the NFIP has been about $18 billion in the hole. And this is from a program that only collects around $2 billion a year in premiums, which barely covers losses and expenses in a normal year. So make no mistake, the NFIP is still on course to cost the taxpayer billions more in the future.

Even before Katrina, the Congressional Budget Office estimated that the NFIP was receiving a subsidy of close to a billion dollars a year. Under CBO’s optimistic projections, the House’s reform bill would increase NFIP revenues by about $4 billion over the next ten years, making only a small dent in the program’s current deficit.

The projected cost savings could potentially be lost by the expansion of the NFIP in the House bill. Yes, you read that correctly. Despite being deep in debt, the House is proposing to expand the coverage, and hence the risk, underwritten by the NFIP. For instance, the reform bill adds coverage for living expenses and “business interruption expenses,” as well as increasing the coverage limit from $350,000 (250k for structure and 100k for contents) to about $520,000 per home.

Such a massive expansion of coverage would likely drive out the existing providers of excess flood insurance coverage. And yes, you also read that correctly: there are a handful of insurers that offer private flood insurance. There is absolutely no reason that the private market could not offer flood insurance. Yes, rates might go up for the highest risk properties, but they would likely go down for others (and clearly reduce costs to the taxpayer). And given the high administrative costs of the NFIP (about 30 percent of premiums go directly to private insurance companies to help run it), it is likely that a completely private system of flood insurance would be cheaper.

In the aftermath of the housing bubble and its extreme costs to the taxpayer, we should eliminate the vast array of subsidies for housing construction, including the NFIP. If there’s one thing we should have learned, the underpricing of risk can have disastrous results.

This Month at Cato Unbound—What’s Wrong with Expert Predictions

Posted by Jason Kuznicki

This month’s Cato Unbound looks at the failure of expert forecasting.

When I was very young my father received a book of expert predictions edited by David Wallechinsky, Amy Wallace, and Irving Wallace, titled simply The Book of Predictions. How’d they do? Awfully.

Virtually no one predicted the peaceful end of the Soviet empire. The next big technology was still outer space, not information. Nuclear war and overpopulation vied with exotic environmental disasters to do us in. Want to print a document? Your computer can do that! Just walk to the end of your street, where you’ll find a device called a “printer.” I’ve kept the book, and I’ve been interested in the failure of expert prediction ever since.

This month at Cato Unbound, experts—sorry, we had to—Dan Gardner and Philip Tetlock lay out the evidence against forecasting, along with suggestions for how to improve it. But they conclude that many forms of forecasting, even those that once seemed just on the horizon, will perhaps always remain a dream:

Natural science has discovered in the past half-century that the dream of ever-growing predictive mastery of a deterministic universe may well be just that, a dream. There increasingly appear to be fundamental limits to what we can ever hope to predict. Take the earthquake in Japan. Once upon a time, scientists were confident that as their understanding of geology advanced, so would their ability to predict such disasters. No longer. As with so many natural phenomena, earthquakes are the product of what scientists call “complex systems,” or systems which are more than the sum of their parts. Complex systems are often stable not because there is nothing going on within them but because they contain many dynamic forces pushing against each other in just the right combination to keep everything in place. The stability produced by these interlocking forces can often withstand shocks but even a tiny change in some internal conditional at just the right spot and just the right moment can throw off the internal forces just enough to destabilize the system—and the ground beneath our feet that has been so stable for so long suddenly buckles and heaves in the violent spasm we call an earthquake. Barring new insights that shatter existing paradigms, it will forever be impossible to make time-and-place predictions in such complex systems. The best we can hope to do is get a sense of the probabilities involved. And even that is a tall order.

Human systems like economies are complex systems, with all that entails. And bear in mind that human systems are not made of sand, rock, snowflakes, and the other stuff that behaves so unpredictably in natural systems. They’re made of people: self-aware beings who see, think, talk, and attempt to predict each other’s behavior—and who are continually adapting to each other’s efforts to predict each other’s behavior, adding layer after layer of new calculations and new complexity. All this adds new barriers to accurate prediction.

GAO’s 159th Report on Medicare/Medicaid Fraud Finds Anti-Fraud Measures ‘Inadequate’

Posted by Michael F. Cannon

Today, the Government Accountability Office will release a new report on fraud in Medicare and Medicaid.  By my count, it is the 159th report the GAO has issued on fraud in these programs since 1986.  According to the Associated Press:

The federal government’s systems for analyzing Medicare and Medicaid data for possible fraud are inadequate and underused, making it more difficult to detect the billions of dollars in fraudulent claims paid out each year, according to a report released Tuesday.

The Government Accountability Office report said the systems don’t even include Medicaid data. Furthermore, 639 analysts were supposed to have been trained to use the system – yet only 41 have been so far, it said.

The Centers for Medicare and Medicaid Services – which administer the taxpayer-funded health care programs for the elderly, poor and disabled – lacks plans to finish the systems projected to save $21 billion. The technology is crucial to making a dent in the $60 billion to $90 billion in fraudulent claims paid out each year.

In this article for National Review, I explain that there are reasons why those tools are, and will remain, “inadequate and underused.”

Moral Panic and Your Privacy

Posted by Jim Harper

Want to understand a big chunk of what Washington, D.C. does? Learn about “moral panic.”

Moral panic is a dynamic in the political and media spheres in which some threat to social order—often something taboo—causes a response that goes far beyond meeting the actual threat. It’s a socio-political stampede, if you will. You might be surprised to learn how easily stampeded your society is.

Take a look at H.R. 1981, the Protecting Children from Internet Pornographers Act of 2011. It’s got everything: porn, children, the Internet. And it’s got everything: financial services providers dragooned into law enforcement, data retention requirements heaped on Internet service providers, expanded “administrative subpoena” authority. (Administrative subpoenas are an improvisation to accommodate the massive power of the bureaucracy, and they’ve become another end-run around the Fourth Amendment. If it’s “administrative” it must be reasonable, goes the non-thinking…)

This isn’t a bill about child predation. It’s a bald-faced attack on privacy and limited government. Congress can move legislation like this, even in the era of the Tea Party movement, because child predation is a taboo subject. The inference is too strong in too many minds that opposing government in-roads on privacy is somehow supporting child exploitation. Congress and its allies use taboos to cow the populace into accepting yet more government growth and yet more surveillance.

I’m not turned to mush by taboos, so the question I’m most interested in having asked at tomorrow’s hearing on the bill in the House Judiciary Committee is: “Under what theory of the Commerce Clause is this bill within the power of the federal government?”

America’s China Conundrum: Simultaneously Confronting and Engaging

Posted by Doug Bandow

Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, is off to China for discussions with Chinese military officers. His trip follows a visit in May by China’s army chief of staff. The discussions are valuable since they will help increase transparency, if nothing else. But they won’t do much more if Adm. Mullen doesn’t bring the right message.

While the admiral is in China the U.S. Navy will be holding exercises with Australian and Japanese forces in the South China Sea. Although the number of ships involved is few, the maneuvers are meant to send a message to Beijing about its controversial territorial claims, which would turn much of these waters into a Chinese lake.

Washington has many issues at play with China—the status of Taiwan, trade and currency disagreements, support for North Korea, status of human rights, policy towards Iran. If the U.S. and People’s Republic of China cooperate, the 21st century is likely to be far more peaceful and productive. If the two nations confront each other, the future could turn ugly.

The ultimate question is whether Washington is prepared to accommodate a wealthier and more powerful PRC in coming years. Contrary to the fevered claims of some, the shift in global power likely will be gradual, not abrupt. The U.S. will remain richer, more influential, and possess a better military for years, if not decades. Indeed, China faces significant economic and political challenges and will be poorer than America even as its GDP grows larger.

However, while the speed and process of China’s rise is not guaranteed, its ability to deter U.S. military intervention will expand. Beijing’s outlay of $100 billion to $150 billion a year on the military already raises alarms in Washington, even though the latter devotes about $700 billion to “defense.” The reason? It is much cheaper for the PRC to defend itself than for the U.S. to sustain an offense capable of imposing Washington’s will on China. Beijing doesn’t need to build 11 carrier groups. It just needs the ability to sink American carrier groups.

Even if a new policy of containment seemed affordable, it still would not be in America’s interest to scatter military tripwires throughout East Asia. Americans obviously will remain very involved in Asian affairs. But alliances should be a means to an end, namely defending the U.S. Alliances should not become ends in themselves. It is hard to imagine what likely dispute—such as whose claim to the Paracel Islands is paramount—would justify the U.S. risking war with an increasingly well-armed nuclear PRC over issues the latter considered vital in its own neighborhood. Consider how Washington would react to Chinese military intervention in Central America.

The better approach would be to encourage friendly states to do more on their own behalf. In fact, that is already happening to some degree.

Japan is slowly moving beyond the strict limitations of Article 9 of its constitution, which technically bans a military. South Korea has begun looking at security beyond North Korea. Australia has embarked upon an ambitious security program. Several Southeast Asian nations have begun purchasing submarines and improving their militaries. All see, and generally fear, the specter of a rising, hostile China.

This process would be accelerated if Washington made clear that it planned to step back and would no longer act as the meddler of first resort. Countries must look after their own interests instead of automatically looking eastward for aid.

Adm. Mullen’s message in the PRC should be simple. China has gained much from its peaceful participation in the international system. Beijing will gain even more in the future if it continues the same strategy. If, however, it chooses aggressiveness over assertiveness, the PRC will have much to fear, and perhaps more from its own neighbors than America.

Exit Interview with Sheila Bair

Posted by Mark A. Calabria

Sunday’s New York Times Magazine has an interesting exit interview with Sheila Bair, who until this past Friday served as Chair of Federal Deposit Insurance Commission (FDIC). While I haven’t always been her biggest fan, I did find it refreshing to hear a bank regulator state the obvious:  we should have let Bear Stearns fail. As she puts it:

Bear Stearns was a second-tier investment bank, with — what? — around $400 billion in assets? I’m a traditionalist. Banks and bank-holding companies are in the safety net. That’s why they have deposit insurance. Investment banks take higher risks, and they are supposed to be outside the safety net. If they make enough mistakes, they are supposed to fail.

I’d be hard-pressed to say it better. Assisting the sale of Bear to JP Morgan created the expectation that anyone larger, like Lehman, would be assisted as well. Perhaps the most interesting part of the interview is that Bair gets right to the heart of the matter: the treatment of bondholders. ”Why did we do the bailouts?” Bair states “It was all about the bondholders.” Again she couldn’t be more correct. If there was anything Dodd-Frank should have fixed it was this, ending the rescue of bondholders and injecting market discipline back into bank.  It is also refreshing to hear her admit: ”I don’t think regulators can adequately regulate these big banks, we need market discipline. And if we don’t have that, they’re going to get us in trouble again.”

Where I disagree, besides her misguided take on mortgage re-sets, is whether Dodd-Frank will actually impose losses on bondholders. Bair expresses some optimism that such is the case, but there are just too many holes in Dodd-Frank to make that believable. Plus you pretty much have the same set of rules in place for Fannie Mae and Freddie Mac, yet the last time I checked the bondholders are still being protected at the expense of the taxpayer. If we don’t impose losses on Fannie creditors, even now after the panic, what makes anyone think we will do so to Citibank. Section 204 of Dodd-Frank is quite clear that the FDIC indeed retains the power to rescue creditors. Something that Bair was willing to do during the crisis, even if pushed to do so by Tim Geithner. Despite some errors, the interview is really a worthwhile read and has some real lessons for avoiding the next financial crisis.

New Light on Paternalism

Posted by David Boaz

Yesterday Mario Rizzo pointed out a couple of new studies on the unexpected results of paternalist policies designed to “nudge” Americans into making what their betters consider smart decisions. In today’s Wall Street Journal, Energy Secretary Steven Chu sums up the paternalist view very concisely. Opposing a House bill to repeal the 2007 federal law that effectively outlaws incandescent light bulbs, Chu says:

We are taking away a choice that continues to let people waste their own money.

Exactly. The government wants to take away our choice. It wants to take away our right to make our own decision. It doesn’t trust us to make our own choices. And why should it? Secretary Chu won the Nobel prize in physics. He’s obviously smarter than we are.

Sure, some people just don’t like fluorescent light. Some people don’t like the way the new bulbs come on slowly. Some people don’t like the curlicue look. Some find that they don’t in fact last longer than incandescent bulbs. Some are skeptical about promises of long-term savings, or simply prefer to spend less now.

But none of that matters to Secretary Chu and other paternalists. They know that these bulbs are best for us, and so they “are taking away a choice” that they don’t think people should make. That’s the difference between the libertarian and paternalist views in a nutshell.

Gauging the Mood of Congress on Military Spending

Posted by Christopher Preble

Amidst the wrangling over a debt deal between the White House and Congress, the most interesting movement pertains to military spending. Several reports today suggest that up to $700 billion in military spending cuts is under consideration, which would amount to a bit more than 10 percent less than current projections over the next 10 years. A more realistic bottom line might be $300 billion, which could be achieved by allowing the budget to grow at the rate of inflation (in other words, no real cuts in spending).

As always, the devil is in the details. From what baseline? Over what time period? Would the cuts apply only to the base DoD budget, or all national security spending, including the costs of the wars, as well as the budgets for the Departments of Homeland Security and Veterans Affairs? Most important is timing. If the savings are all backloaded in the out years, they may never materialize. Today’s budgets project spending out five or 10 years, and the “savings” really just amount to a new set of projections against that baseline. Plus, these agreements are rarely binding on future congresses; a different cast of characters will be responsible for passing DoD appropriations bills in 2018 or 2020.

One thing is clear, however. People here in Washington are now considering military spending cuts that they thought strategically unwise and politically impossible just a few years ago. And conservatives are joining in. South Carolina Republican Mick Mulvaney offered an amendment to the DoD budget appropriation bill that would have frozen spending at 2011 levels, a $17 billion cut below the amount voted out of committee. Meanwhile, three Democrats and three Republicans co-sponsored an amendment to cut the proposed increase in the FY 2012 budget in half, generating savings of $8.5 billion. The bad news for taxpayers is that both amendments failed. The good news is that some in the GOP are starting to match their rhetorical zeal for spending cuts with actual votes that do so; 43 Republicans voted for both measures. (h/t DSM)

It is no longer credible to declare military spending off limits in the search for savings, and most Americans understand that we can make significant cuts without undermining U.S. security (William Kristol being one of the predictable outliers).

I’ll hazard a prediction: I think that military spending in FY 2012 will be slightly less than President Obama initially requested, but still not less than will be spent in FY 2011 (in other words, they’re still only faking cuts).

To get real cuts, Washington is going to have to clear some things off the military’s plate. If we want a military that costs less, we have to ask it to do less. And I don’t see a lot of enthusiasm for that—yet. Starting a new war in Libya (and signaling that similar missions are in the military’s future) doesn’t help.

Perhaps the key will be to connect two seemingly disconnected dots: our subsidizing defense spending for other rich countries has allowed them to divert money to dubious social spending and a too-large public sector with too-generous pay and benefits. I don’t know how Republicans (or Democrats, for that matter) can go to their constituents and say they’re cutting popular programs here in the United States, and holding the line on the DoD’s budget, so that our European and East Asian allies can fend off cuts in their pensions and avoid taking responsibility for their own security.

For more, see the video after the jump.

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PolitiFact Just Called, Again. I Declined to Help, Again.

Posted by Michael F. Cannon

Here’s why.

This Week in Government Failure

Posted by Tad DeHaven

Over at Downsizing the Federal Government, we focused on the following issues this past week:

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