Archive for July, 2011
Krauthammer on Sen. Reid’s Proposed Spending Cuts
“I’m told there’s an extra $10 billion in here of savings from not invading Normandy a second time.”—quoted at The Corner
Taking on the Food Police
I was going to write a blog post on the myriad follies of Mark Bittman’s op-ed in Sunday’s New York Times about all the ways the federal government could and should intervene in people’s dietary choices , but Jacob Sullum has already done it for me. Brilliantly.
HT: Radley Balko
How Your Government Deceives You, ‘Social Insurance’ Edition
From my former Cato colleague, Will Wilkinson:
The trick to weaving an effective and politically-robust safety net for those who most need one is designing it to appear to benefit everyone, especially those who don’t need it. The whole thing turns on maintaining the illusion that payroll taxes are “premiums” or “insurance contributions” and that subsequent transfers from the government are “benefits” one has paid for through a lifetime of payroll deductions. The insurance schema protects the main redistributive work of the programme by obscuring it. As a matter of legal fact, payroll taxes are just taxes; they create no legal entitlement to benefits. The government can and does spend your Social Security and Medicare taxes on killer drones. But the architects of America’s big social-insurance schemes, such as Frances Perkins and Wilbur Cohen, thought it very important that it doesn’t look that way. That’s why you you see specific deductions for Social Security and Medicare on your paycheck. And that’s why the government maintains these shell “trust funds” where you are meant to believe your “insurance contributions” are kept.
Alas, like Social Security and Medicare themselves, the deceptions that protect these entitlement programs cannot go on forever.
Generally, liberals are profoundly conservative about the classic Perkins-Cohen architecture of America’s big entitlement programmes, which they credit for their remarkable popularity and stability. Yet that architecture offers very few degrees of freedom for significant reform. Crunch time is coming, though, and sooner or later something’s got to give.
If Wilkinson’s overlords at The Economist demand that he misspell program, they should be consistent and allow him to abandon the American convention of mislabeling leftists as liberals.
‘Education’: The Relentless Political Weapon
On at least six occasions in his address to the nation last night President Obama invoked the words “education,” “student,” or “college” to scare listeners into thinking that the federal government must have increased revenues. Typical was this bit of cheap, class-warfare stoking rhetoric:
How can we ask a student to pay more for college before we ask hedge fund managers to stop paying taxes at a lower rate than their secretaries? How can we slash funding for education and clean energy before we ask people like me to give up tax breaks we don’t need and didn’t ask for?
Now, I’m all for eliminating economy-distorting tax loopholes, incentives, etc. But there is simply no way on God’s green Earth that the President—or anyone else—could look at what the federal government has done in the name of education and conclude that it has been anything but a bankrupting, multi-trillion-dollar failure:
- Spending on Head Start is ultimately just money down a rathole according to the federal government’s own assessment
- In K-12 education, Washington has dropped ever-bigger loads of cash onto schools out of ever-bigger jumbo jets, but has gotten zero improvement in the end
- In higher education, all the money that supposedly makes college more affordable is actually a major driver behind students having ”to pay more for college”—just what the President decries—because it enables colleges to raise their prices at rates far outstripping normal inflation
The only people who regularly benefit from federal education profligacy are not students, but school employees and, especially, their lobbyists. They are teachers’ unions, tenure-track college professors, school administrators of all varieties, but not students, and definitely not taxpayers. Oh, and one other group: politicians who, despite the overwhelming evidence that all their spending on education is utterly useless, just keep exploiting students to buy votes and beat down anyone who would return the federal government to a sane—and constitutional— size.
Education, for our politicians, is not a thing to be fostered. If it were, they’d get out of the business. No, it is a political weapon, and it continues to be used to deadly effect.
Finns Begin a Quixotic Quest for Prevention
In the aftermath of the Oslo terror attack, Finnish police—yes, Finnish—plan to increase their surveillance of the Internet:
Deputy police commissioner Robin Lardot said his forces will play closer attention to fragmented pieces of information—known as ‘weak signals’—in case they connect to a credible terrorist threat.
That is not the way forward. As I explored in a series of posts and a podcast after the Fort Hood shooting here in the United States, random violence (terrorist or otherwise) is not predictable and not “findable” in advance—not if a free society is to remain free, anyway. That’s bad news, but it’s important to understand.
In the days since the attack, many commentators have poured a lot of energy into interpretation of Oslo and U.S. media treatment of it while the assumption of an al Qaeda link melted before evidence that it was a nationalist, anti-immigrant, anti-Islamic “cultural conservative.” Such commentary and interpretation is riveting to people who are looking to vindicate or decimate one ideology or another, but it doesn’t matter much in terms of security against future terrorism.
As former FBI agent (and current ACLU policy counsel) Mike German advises, any ideology can become a target of the government if the national security bureaucracy comes to use political opinion or activism as a proxy or precursor for crime and terrorism. Rather than blending crime control with mind control, the only thing to do is to watch ever-searchingly for genuine criminal planning and violence, and remember the Oslo dead as Lt. General Cone did Fort Hood’s: “The … community shares your sorrow as we move forward together in a spirit of resiliency.”
People Think of Something as Their Business When It Is Their Business
A WSJ interview with Bill Gates includes this pivotal observation:
“I believe in innovation and that the way you get innovation is you fund research and you learn the basic facts.” Compared with R&D spending in the pharmaceutical or information-technology sectors, he says, next to nothing is spent on education research. “That’s partly because of the problem of who would do it. Who thinks of it as their business? The 50 states don’t think of it that way, and schools of education are not about research. So we come into this thinking that we should fund the research.”
While it’s true that public school districts don’t spend a lot on R&D, a vast army of academics has been cranking out research in this field for generations. The Education Resources Information Center, a database of education studies dating back to 1966, boasts 1.3 million entries. So the problem is not a lack of research, but rather that most of the research is useless and that the rare exceptions have been ignored by the public schools.
Why? Because, as Bill Gates correctly observes, hardly anyone thinks of education as their business. And how do you get masses of brilliant entrepreneurs to think of education as their business? You make it easy for them to make it their business. When and where education is allowed to participate in the free enterprise system, entrepreneurs enter that field just as they do any other–and excellence is identified and scales up. It is a process that happens automatically due to the freedoms and incentives inherent in that system. More than that, it is the only system in the history of humanity that has ever led to the routine identification and mass replication of excellent products and services.
So what happens if you want market outcomes but reject the market system that creates them? You are left to re-invent the wheel… without the only value of pi that makes a circle.
The Ratchet Effect, Agriculture Edition
Between the lines of a front-page Wall Street Journal article about farm subsidies [$] is an instructive example of the ratchet effect:
Land prices are way up and so are bank deposits, as high corn and soybean prices mean local farmers are making the most money in their lives…An exception to the boom is the local office of the U.S. Agriculture Department, the dispensary of federal payments to farmers from an array of arcane programs with names like ‘loan deficiency’ and ‘milk income loss.’ On a recent afternoon, the parking lot in front of the squat brick building behind a Chinese restaurant was nearly empty.
The reason: Payments from America’s primary farm-subsidy program, dating from the 1930s, have stopped here. Grain prices are far too high to trigger payouts under the program’s ‘price support’ formula. The market, in other words, has done what decades of political wrangling couldn’t: slash farm subsidies.
Though the subsidy payments always ebbed and flowed with crop prices, many economists are convinced that what is happening now is different. A fundamental upward shift in crop prices is creating the real possibility that Midwestern farmers won’t ever again qualify for the primary form of farm subsidy.
There remain other types of subsidies, which continue to pay out because they aren’t linked to market prices. But high prices are undermining political support for those programs…
Well, there’s some good news. Maybe we can start downsizing the USDA, including by closing some of those local offices? Not so fast. The last two paragraphs of the article (on page A10) leave us with this cheery thought [emphasis added]:
Meanwhile, workers in the USDA’s county offices, seeing the handwriting on the wall, are campaigning for new things to do, now that there aren’t any price-support payments to dispense. One idea is to give them responsibility for federally subsidized crop insurance, currently handled by private companies.
Heck, why not? Heaven knows the federal government is flush with cash.
What to Read on the Financial Crisis, Part II: Popular
Last week I offered my suggestion on the one book you should read, if you really want to understand the financial crisis. In this Part II, I offer a list of popular books, mostly written by journalists, along with very brief thoughts. Part III, to come, will focus on more “scholarly” books.
As general rule, these popular books lack a theoretical framework of the crisis. They often have the feel of a “bad people did bad things” narrative. These are only books I’ve actually read (and remember), so its a selective list. Some are insider stories of only a single firm, and hence, somewhat limited in their usefulness. I will also give little evidence behind my judgments, so if you don’t value my opinion, stop reading now.
1. All the Devils Are Here, by Bethany McLean and Joe Nocera. (2 stars) There’s only one reason to read this: it is the model of the establishment Left version of the crisis. This is the book that future Harvard professors will force their students to read to “understand” the evil Bush years. Otherwise, skip it. Wildly off both in terms of fact and interpretation. Read any of their columns and you know what the book is like.
2. Reckless Endangerment, by Gretchen Morgenson and Joshua Rosner. (4 stars) See Part I. Despite many flaws, probably the best of the “popular” books.
3. After the Fall, by Nicole Gelinas. (3 stars) I usually love Nicole’s stuff, and the story here on “too-big-to-fail’ is dead-on, but I think she’s off on Glass-Steagall and doesn’t make that case. Still, a relatively short and worthwhile read.
4. Fool’s Gold, by Gillan Tett. (4 stars) Exclusively about JP Morgan, but great background on credit default swaps. So despite its narrow focus on one firm, still a worthwhile read.
5. Chain of Blame, by Paul Muolo and Mathew Padilla. (3 stars) A narrow, but interesting, focus on subprime mortgage lending. Muolo is a long time reporter for National Mortgage News, so this has an almost insider’s feel of the mortgage industry, for that reason a worthwhile read.
6. Senseless Panic, by William Isacc. (4 stars) Author is the former FDIC Chair during the S&L crisis, and applies insights learned there to the current crisis. He misses a lot, but it’s breezy and short, and what is there is very worth reading. I wouldn’t put this at the top of your list, but if you’re going to read several, then add this one.
7. House of Cards, by William Cohen. (3 stars) Focused exclusively on Bear Stearns. Again, a narrow focus, but generally fast moving and an interesting story line.
8. The Sellout, by Charles Gasparino. (4 stars) Despite a few minor factual errors, this was one of the better books. He’s tough on Washington and Wall Street, and accurately so.
9. A Colossal Failure of Common Sense, by Larry McDonald. (3 stars) Focused only on the failure of Lehman. Maybe too much useless personal detail, but otherwise an interesting story.
10. In Fed We Trust, by David Wessel. (3 stars). Despite reading like a love letter to Bernanke, it is probably the best inside story of the Fed’s behavior during the crisis, which is also its weakness as the book offers little insight into happens outside the Fed.
Again, Part III will focus on more scholarly books, and in my opinion, generally more insightful reading. That said, they don’t often make fun beach reading, which the above should be safe for.
From Hell to Heaven
Cory Maye was in his home one evening minding his own business when his front door came crashing down. Frightened that criminals were going to harm him and his child, Maye quickly retrieved a gun. When his bedroom door came crashing down next, Maye fired. When the lights came on, it turned out that the intruders were police officers and that Maye had killed one of them. The nightmare had only just begun for Maye. Police and prosecutors twisted a case of self-defense into a “murder” charge and they sought the death penalty. Cato fellow Radley Balko read about the case when he was researching a paper concerning the militarization of police tactics and no-knock raids. Radley then wrote about the injustice of Maye’s situation and word spread via the internet. A new legal team took up the case and appeals followed. When a court ordered a new trial for Maye, prosecutors offered a deal–plead guilty to a lesser charge and Maye would be set free because he had already served years in a Mississippi prison. Maye took the deal even though many thought he should not have any criminal conviction on his record for what happened that night. Still, it is hard to blame a guy for wanting to get out of prison to see his children just as fast as he possibly could. Maye was released a few days ago and here’s a snap of him playing around with his son.
Congrats to Maye. Congrats to Radley. And congrats to Maye’s lawyers at Covington and Burling.
An Intended Consequence
The New Republic has an interesting article explaining “How Campaign Finance Laws Made the British Press so Powerful.” Basically, only British newspapers are free of regulations that suppress political speech. The author suggests adding more controls (including content restrictions) on the British newspapers to enforce “impartial” coverage. In other words, the media should be just as repressed as everyone else, and political leaders should be free of criticism.
Like many others, I have long thought that U.S. newspapers editorialize in favor of campaign finance restrictions to control competing speech and thereby become more powerful. After Citizens United, other organizations now enjoy the same First Amendment protections as media corporations like The New York Times and The Washington Post. No doubt that does mean such corporations are less powerful than they would be if campaign finance laws suppressed political speech that competes with their editorials and news reports. However, such competition is good for voters.
Lobbyists Are Doing Fine in the Recession
In this week’s Encyclopedia Britannica column I write:
Headlines this week reported a slight decline in reported expenditures by federal lobbyists. Of course, it would have been hard to keep up the pace set as companies and other interest groups fought to get a piece of the TARP bailout, the massive stimulus bill, the omnibus appropriations bill, the health care bill, and other spending and regulatory bills that passed during the 2008-2010 legislative frenzy.
But don’t worry about the big lobbying firms. They’ll do fine.
I explain why those reports can be misleading, cite Adam Smith and F. A. Hayek and lots of recent news stories, and conclude:
Lobbying is one of the costs—not the worst cost, but certainly a galling one—of a government that is “generous and compassionate,” based on “a progressive vision of our society,” a government that “helps families find jobs at a decent wage, care they can afford, a retirement that is dignified,” a government that “directs help to the inspired and the effective,” a government that will “restore the security of working families.” If that’s the government you want, then lobbying is an inevitable adjunct. Let’s not forget that analysis from Craig Holman of Public Citizen: “the amount spent on lobbying . . . is related entirely to how much the federal government intervenes in the private economy.”
Richard Haass on U.S. Foreign Policy
Council on Foreign Relations President Richard Haass has just published an article in Time magazine (also available here) that challenges many of the comfortable nostrums guiding U.S. foreign policy for at least the last twenty years. He scores a 9 out of 10 in his analysis of what is wrong: we have an inordinate fear of things that shouldn’t be that frightening; we have a misplaced faith in our ability to fix nettlesome problems in distant lands; and we repeatedly stumble into costly and counterproductive wars that we should generally avoid.
Haass then proposes a new doctrine to “help establish priorities and steer the allocation of resources” and “that fits the U.S.’s circumstances.”
It is one that judges the world to be relatively nonthreatening and makes the most of this situation. The goal would be to rebalance the resources devoted to domestic challenges, as opposed to international ones, in favor of the former. Doing so would not only address critical domestic needs but also rebuild the foundation of this country’s strength so it would be in a better position to stave off potential strategic challengers or be better prepared should they emerge all the same.
So far, so good. The problem, however, is not what Haass proposes to do — refocus America’s attention and resources at home, what he calls “restoration” – but rather how he proposes to do it. For all his wisdom in defying the Washington foreign policy consensus, he betrays a typical Washington-centric approach by suggesting that the federal government must take the lead “in restoring this country’s strength and replenishing its resources — economic, human and physical government.”
Restoration is not just about acting more discriminating abroad; it is even more about doing the right things at home. The principal focus would be on restoring the fiscal foundations of American power.
[...]
Reducing discretionary domestic spending would constitute one piece of any fiscal plan. But cuts need to be smart: domestic spending is desirable when it is an investment in the U.S.’s human and physical future and competitiveness.
In other words, the money we save by not waging foolish wars abroad would be redirected to other government projects. Thus, he calls for more federal spending for higher education, despite the fact that such spending has exploded over the past three decades, and has coincided with an equally dramatic rise in tuition – often three to four times the rate of inflation. (H/T N.M.) Haass likewise calls for more money to public transportation, despite the fact that federal support for Amtrak, for example, amounts to a massive subsidy paid from non-riders to the often relatively well-to-do. Similar facts prevail in other government-subsidized transit systems.
Haass is also wrong to perpetuate the myth that we are dependent on Middle East oil. We’re not. The Middle Easterners are dependent upon selling it. We have alternatives to buying their oil, and we don’t need government to force us to exercise them.
Here’s a different approach to restoring America’s strength at home: we should stop asking our brave men and women in uniform to be the world’s policemen; refocus a smaller, less expensive military on a few core missions that are vital to U.S. security; and give every American family a tax cut. If we spent what the average British or French citizen devotes to national security, that could amount to more than $6,000 a year for the average family of four. The savings would be even greater if we matched what Germans and Japanese spend. Every American family could then choose how to spend or invest their money (e.g. Save for college. Pay for bus/train fare. Buy a more fuel-efficient car, etc).
There is already considerable support for cutting the Pentagon’s budget, and I think there would be even more if people believed that these savings would not merely be diverted elsewhere within the federal government. Richard Haass has made an important and timely contribution to the debate over the future of U.S. foreign policy, and I generally concur with his assessment. But he and others should demonstrate the tangible benefits that would flow to the average American from a more prudent, restrained foreign policy. I think that fewer dumb wars and more money in our pockets is a pretty compelling case.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
