Archive for July, 2011
Debate: Colleges Getting Rich Off Students and Taxpayers?
On Tuesday, Cato held a forum on the big profits made by putatively “nonprofit” colleges, the subject of a new Cato Policy Analysis. Not surprisingly, Peter McPherson, president of the Association of Public and Land-grant Universities, objected to the use of the term “profits” to categorize the excess money colleges take in through undergraduate students, but all the panelists seemed to agree that there is both significant waste in higher ed, and that the Capitol Hill obsession with unabashedly for-profit institutions misses big cracks all over the Ivory Tower.
Unfortunately, of course, many of you couldn’t join us on Tuesday. Thankfully, you can now take in the entire bit of illuminating infotainment right here:
On a related note, give George Leef’s latest commentary a read. He does a nice job of pointing out all the major flaws in perhaps the most politically powerful argument for ever-greater government spending on higher education: because degree-holders tend to earn more, we need oodles more people with degrees. I’ve taken a whack at that dubious argument recently, but George gives it a far more comprehensive treatment.
TSA’s Partial Retreat From Full-Body Scans
It’s tempting to believe that the Transportation Security Administration’s move to change the software in strip-search machines is a response to the court ruling finding that it violated the law in rolling out the machines, but it’s almost surely coincidence.
The new software will show items that the software deems suspicious on a generic outline of a body rather than showing a detailed body image. The change will indeed reduce the invasiveness of the machine strip-search process. And because the image is less revealing, it can be viewed in the screening area instead of at a remote location. That means there doesn’t need to be a person dedicated to looking at denuded images of travelers. A major cost of running these machines—payroll—drops by a substantial margin.
The software will almost certainly not do as good a job of discovering hidden weapons as a human looking at a detailed image would. If it’s calibrated to over-report, TSA agents will rightly start to ignore its alerts on belt buckles and underwire bras. If it’s calibrated to under-report, well, it might fail to alert on an actual weapon or bomb. But those things are exceedingly rare, and the increased risk probably won’t make a difference.
In fact, that’s the interesting thing happening here: the TSA is allowing a small increase in risk in exchange for large gains in privacy and cost savings. The reason it took years of complaints, litigation, legislation, and other conflict is because the TSA did not analyze the risks and its responses before going forward with strip-search machines as it did. Trial-and-error isn’t costly to the government. The taxpayer fronts the money and gives up the privacy.
None of this means the TSA has now gotten the balance right. The airport security gauntlet will still be an overwrought mess and an affront to constitutional liberty. We will have to remain insistent on principle, on dignity and privacy, and on sound risk management while TSA gets a public relations bump from being less awful than it was before.
How Much Defense Acquisition Waste Is Enough?
Stories in DoD Buzz and the Christian Science Monitor this week cover a new Center for Strategic and Budgetary Assessment report on the Pentagon’s 2012 budget request. Both articles focus on the insightful section of the report explaining how the post 9-11 defense spending explosion has barely increased our war-fighting capacity. Unfortunately, both echo the report’s claim that all money spent on cancelled programs is money wasted and an indictment of the Pentagon acquisition system (page 36 and 37).
Here’s how the Monitor put it:
The new spending involves considerable waste, the report says. The Pentagon has spent nearly $50 billion since the 9/11 attacks on weapons systems that it never used due to technological failures or cost overruns, according to the study.
“These are weapons systems that have been started and then canceled without using any of them – we never saw one system fielded as a result of these programs,” says Todd Harrison, defense budget studies senior fellow with CSBA. “We can’t keep starting programs that are unrealistic and unaffordable and getting them canceled without getting anything out of it.”
In some ways, that complaint is sound. At least some of these programs suffered troubles made predictable by an acquisition process that often allows overly ambitious projects to break the bank. The Marines’ Expeditionary Fighting Vehicle is an example.
The main problem with this analysis is the implication that the correct acquisition failure rate is zero. Reward rarely comes without risk. Successful enterprises often fail. Apple failed with the Newton. Great base stealers often get thrown out.
Militaries are particularly prone to missteps because of their uncertain environment. Their business is competitive as can be, but the competitions (wars) are rare and thus hard to predict. Platforms last longer than enemies and cutting edge technology. This uncertainty means that programs should often be found wanting and cancelled. The question is not how to build an acquisition system that never fails but the right ratio of success to failure.
CSBA counts $46.4 billion in spending over the past decade on programs that got cancelled before procurement. That’s a big number. But it is a modest failure rate. It’s just 6.3 percent of total RDT&E (Research, Development, Testing and Evaluation) spending in the period, 2.4 percent of total acquisition spending (RDT&E plus procurement) and 2.7 percent of the Pentagon’s ongoing major acquisition programs. You could add percentage point or two in each category by including programs that got cancelled after we bought only a handful, like the DDG-1000 destroyer.
I don’t know what the perfect rate of failure is. But I see no reason why this one is unsustainable, as Harrison says. I actually suspect, for a couple reasons, that the numbers are too low; that the Pentagon should fail more.
First, bad programs often survive thanks to the iron triangle—services bureaucracies that want a new platform, contractors that make it, and Congressmen representing districts where they build. Cancellation shows that the political system can make choices serving the national interest at the expense of parochial ones. Parochialism usually wins.
Second, we foolishly limit competition that would increase cancellations. Our four services largely manage their own procurement, with oversight from feuding officials in two branches. This dispersal of power produces diverse solutions to military challenges. We also launch more acquisition programs than we can afford, encouraging low bids to hide costs that everyone knows are coming. Wealth encourages us to replace manpower with technology, increasing the need for innovation. The natural result of these forces is competition for survival among programs. Contrary to conventional wisdom, that competition is useful. It encourages program managers to outshine rivals on cost and capability.
Rather than harvest this creative destruction, we suppress it. The Pentagon’s culture of jointness quiets public fights where program managers attack rival programs. Fixed budget shares encourage them to cover procurement shortfalls by growing the entire pie, rather than competing. Ever-increasing defense budgets delay reckoning. Embracing competition would produce more innovation and more cancelled programs, which CSBA would call waste.
* Cross-posted on National Defense Magazine‘s blog.
‘Gang of Six’ Plan Is Lousy
My colleague Dan Mitchell discussed the good, the bad, and the ugly in the deficit reduction plan released by the bipartisan group of senators known as the “Gang of Six.” As Dan noted, the plan is more of an outline and a complete assessment isn’t possible until more details emerge. However, the fact that President Obama immediately embraced the plan ought to tell proponents of limited government all they need to know.
Here are some random thoughts on the plan:
- There’s nothing impressive about the “immediate” $500 billion in deficit reduction. That figure includes revenue increases, so it’s not even $500 billion in spending cuts. And I’m not sure why they say “immediate” when they probably mean that the reductions would occur over the next several fiscal years. The deficit alone for next year will probably be at least $1 trillion.
- The plan promises about $2.5 trillion in spending reductions over 10 years. As I’ve been pointing out, $2 trillion in spending cuts isn’t a lot when compared to the $46 trillion the government is projected to spend over the next decade. See this Cato video for more.
- Tax reform is fine; more revenue for the government is not. Transferring more resources from the private sector to the government is a loser for both economic and individual liberty. In addition, the plan’s requirement that tax reform “maintain or improve the progressivity of the tax code” would result in more Americans viewing the federal government’s spending programs as a “free lunch.”
- My anti-tax credentials are beyond question: I equate taxation with theft. But I don’t like debt-financed spending any more than I like tax-financed spending. Had anti-tax advocates and Republicans put the same amount of effort into restraining spending during the Bush/Republican Congress years as they did in cutting taxes, we might not be facing the prospect of a large tax increase today. Unfortunately, I see little evidence that that lesson has been learned.
- The plan does almost nothing to rein in the scope of federal government’s activities. It doesn’t seem to matter which party or ideological faction on Capitol Hill releases a plan — conservatives, moderates, and liberals all apparently assume that the federal government should continue doing everything that it currently does. Generally speaking, Democrats want more tax revenue to maintain an expansive government. Republicans talk about smaller government, but only a handful can articulate exactly what programs or functions they’d eliminate. It’s more common to hear Republicans blubber on about “reducing waste, fraud, and abuse” in government programs and “saving” the pillars of the welfare state (Social Security and Medicare) for “future generations.”
- Our global military presence would make a Roman emperor blush and our Founding Fathers roll over in their graves, but there’s nothing in this plan to suggest that the military-industrial complex faces any threat.
In sum, if you’re hoping that debt reduction will be brought about through a reduction in the federal warfare/welfare state, you’re going to have to wait for a different plan. And the sad truth is that no such plan is going to materialize anytime soon – at least not one that will get through Congress and signed by the president. But look on the bright side – we’re not Greece! Not yet.
Guns in D.C.
Three years after the Supreme Court’s landmark Heller ruling, which declared Washington, D.C.’s gun control laws unconstitutional, city officials keep fighting. Under pressure from another lawsuit concerning a de facto ban, the city says that guns may now be purchased at the police station. No details yet on whether residents will have to change into orange jump suits and wait in the holding cells while the police process the paperwork.
More here.
Budget Plans: Gang of Six and Senator Coburn
The “Gang of Six” senators has released an outline of budget reforms that would supposedly reduce deficits by $3.7 trillion over 10 years. Revenues would rise by at least $1 trillion, while spending would be theoretically trimmed by various procedural mechanisms. The plan promises to “strengthen the safety net,” “maintain investments,” and “maintain the basic structure” of Medicare and Medicaid, which doesn’t sound very reform-minded to me.
The Gang of Six plan is a grander version of Sen. Mitch McConnell’s recent debt-limit proposal, which was aimed at putting off any spending cuts. The Gang outline has a few specific cuts, but the document mainly consists of promises to restrain spending and raise taxes in the future.
I’m surprised that Sen. Tom Coburn supports the Gang plan because his office has just released a massive study chock-full of specific spending-cut ideas. The Gang plan is all about avoiding specifics, while Coburn’s plan has 621 pages of details.
Coburn’s “Back in Black” plan would reduce deficits by $9 trillion over the next decade. The plan includes some tax increases, but the core of the document is a line-by-line analysis of every department’s budget, with lists of programs to cut and terminate. The plan includes a wealth of useful information that will aid policymakers interested in cutting spending for years to come.
So congratulations to Roland, Joelle, and the whole Coburn team for their late nights spent pouring through the budget, and for their great job documenting their findings with more than 3,000 endnotes.
Every Senate and House office should perform a similar exercise of proposing specific cuts. The government faces a debt crisis, yet only Coburn, Sen. Rand Paul, and perhaps a few others in Congress have put any effort into identifying unneeded programs.
Look on the official websites of most members of Congress and you will see discussions in support of spending on education, seniors, energy, research, highways and many other activities. When members are in front of TV cameras, they sound like they take the debt crisis seriously, but most congressional websites reveal a different mindset where federal spending is always wonderful and helpful to society.
Coburn’s staff tells me that about a dozen staffers chipped in on its Back in Black effort in recent months. If other House and Senate offices went through such an exercise, it would help members clarify their positions about the role of government and help them think about spending trade-offs.
My summer homework assignment for every congressional office is to go through a Coburn/Paul-style budget downsizing exercise. That could lead to more serious spending debates and more concrete proposals than the generally meaningless bullets points issued by the Gang of Six.
The Risks of Playground Safety
New York Times science writer (and longtime libertarian favorite) John Tierney had a great piece yesterday under the headline, “Can a Playground Be Too Safe?” As Tierney observes:
The old tall jungle gyms and slides disappeared from most American playgrounds across the country in recent decades because of parental concerns, federal guidelines, new safety standards set by manufacturers and — the most frequently cited factor — fear of lawsuits.
Some researchers argue that the safety benefits of the revamped designs have been oversold; kids can break bones falling from not-so-high slides onto relatively soft surfaces, for example. One researcher outlines what sounds like a teeter-totter version of the Peltzman hypothesis: “If children and parents believe they are in an environment which is safer than it actually is, they will take more risks.”
Moreover, playgrounds with an element of genuine, unmistakable risk can offer children “the benefits of conquering fear and developing a sense of mastery,” thus helping them develop into adults who are venturesome rather than timid. Tierney closes the piece with a perfect pair of quotes from a Bronx 10-year-old and her mother:
“I was scared at first,” she explained. “But my mother said if you don’t try, you’ll never know if you could do it. So I took a chance and kept going. At the top I felt very proud.” As she headed back for another climb, her mother, Orkidia Rojas, looked on from a bench and considered the pros and cons of this unfamiliar equipment.
“It’s fun,” she said. “I’d like to see it in our playground. Why not? It’s kind of dangerous, I know, but if you just think about danger you’re never going to get ahead in life.”
If only the judges and legal academics who’ve made war on principles like “assumption of risk” in liability law were as insightful.
Medicare/Medicaid Fraud Shows Why the Ryan Roadmap Belongs in Debt-Limit Negotiations
Cato’s crack filmmakers have just released this video based on my National Review article, “Entitlement Bandits — How the Ryan Plan Would Curb Medicare and Medicaid Fraud.”
The message is simple. Medicare and Medicaid don’t just tolerate massive amounts of fraud. They protect it. Members of Congress care so little about fraud that they can’t be bothered to measure the problem properly and even block effective anti-fraud efforts. It’s not because they are evil. They are simply following the incentives the political system creates. The result is that the rate of fraud in these programs is hundreds of times larger than in credit cards, for example.
Short of repeal, nothing is going to alter those incentives in a way that would bring such fraud down to the levels tolerated in the private sector. Nevertheless, Paul Ryan’s budget proposal offers the best hope of reducing fraud in these programs from its current level of $100 billion or more. Which is why the Ryan plan belongs on the table during the current debt-limit negotiations.
Tim Geithner’s Alternate Reality
When I turned to today’s Wall Street Journal editoral page, I thought it had been replaced by the Onion, for here was Treasury Secretary Tim Geithner offering a version of history that bears little resemblence to the truth. But then again this is the same guy who claimed he’d never been a bank regulator despite having been President of the NY Federal Reserve (before and during the crisis).
Maybe the most humorous lines: “The president made two key decisions…second, he asked us to write draft legislation rather than propose broad principles. The president did not want the new rules to end up being written by those who brought us to the edge of catastrophic financial failure.” Then why in the world was Mr. Geithner included in the writing of the bill. Did Obama forget Geithner headed the most important regulator of Wall Street both before and during the crisis? And if your standard is not wanting those who “brought us to the edge of catastrophic financial failure,” then why were Chris Dodd and Barney Frank allowed anywhere near the bill? Seriously.
Almost as bad was Geithner’s claim that “we have started the process of winding down Fannie Mae and Freddie Mac and reforming the overall mortgage market.” Really? How so? Oh, that’s right: some useless, empty, bereft-of-detail report sent to Congress. Again, this is the same guy who chose to raise the cap on potential Fannie and Freddie losses, placing the taxpayer at the potential loss of hundreds of billions.
Another fantasy: “While many misperceive the investment made in banks under the Troubled Asset Relief Program as an unfair and unjust gift to the financial sector, we have already turned a profit on these investments, and we may do so on all the government intervention programs.” Wake up, Tim: the TARP was a bank bailout, and we are nowhere near recovering the $160 billion so far put into Fannie and Freddie. We are also losing money on the auto bailouts.
I could go on, but it’s not necessary. Why the President continues to support Geithner when almost no one, of any party, takes the guy seriously anymore, is beyond me. For there to be any hope of real, substantial reform of our financial system, those who “brought us to the edge of catastrophic financial failure” need to go. And the place to start is with Geithner.
DHS’ Contempt of Congress and Constitution
Homeland Security Newswire reports:
Last week, DHS officials chastised Representative Jason Chaffetz (R – Utah) for disclosing sensitive security information to the press.
In a letter, Joseph Maher, DHS’s deputy counsel, scolded Chaffetz, the chair of the House Subcommittee on National Security, Homeland Defense, and Foreign Operations, for openly discussing “sensitive security information” provided by the Transportation Security Administration(TSA). Maher wrote, “This document was marked as [Sensitive Security Information] and provided clear notice that unauthorized disclosures of the document violated federal law.”
The letter comes in response to Chaffetz’s comments last week that revealed that there have been more than 25,000 security breaches at U.S. airports since November 2001.
Take out your Constitutions, kids. There, in Article I, you’ll see the words that create the Congress and establish its authorities. Now go look for the language that authorizes a sprawling executive branch with agencies like the Department of Homeland Security. Enough searching will suggest to you that the DHS is a subordinate of Congress. It exists by the grace (and/or mistake) of the legislative branch of the government.
You’ll also see the Speech or Debate Clause, which bars Members of Congress from being “questioned in any other Place” for anything they say in Congress. The clause exists to insulate Members of Congress from outside authority trying to influence their deliberations—outside authorities like DHS deputy counsel Joseph Maher.
Did Representative Chaffetz reveal SSI, or “sensitive security information”? So what? In my experience, that’s a designation that DHS officials throw around cheaply and easily. Here, it’s being used more to hide the agency’s failings than to protect the public.
Representative Chaffetz is entirely correct to air publicly the failings of the TSA. The more aware we are of the government’s security fakery, the more sensible will be our estimate of risks to airline security and how to respond to them.
Parallels to 1995 in Spending Fight
The American welfare state has been in crisis for decades. Many of the problems faced in 1995 fight have become less tractable problems today. John Samples comments in yesterday’s Cato Daily Podcast.
One notable difference between 1995 and today, Samples says, is that the GOP of 1995 kept Social Security off the chopping block for spending cuts.
Subscribe to the podcast here (RSS) and here (iTunes).
Should There Be ‘Shared Sacrifice’?
At the Encyclopedia Britannica blog, I take on the argument made, for instance, by President Obama in his Friday news conference:
We should not be asking sacrifices from middle-class folks who are working hard every day, from the most vulnerable in our society — we should not be asking them to make sacrifices if we’re not asking the most fortunate in our society to make some sacrifices as well.
I call that a fundamentally flawed argument:
The main thing our government does these days, despite the lack of any constitutional authority for it, is tax some people and transfer money to other people. …But there is no moral equivalence in the two sides of the transfer system. On the one hand, the government takes money by force from people who have earned it. On the other hand, it gives some of that money to people who have not earned it. Taking yet more money that people have earned is simply not equivalent to reducing the size of a government transfer.
There is, however, one way that we could ask businesses and the rich to join in the deficit-reduction effort:
But here’s a way to satisfy both those who see spending as the problem and those who want the highest-taxed Americans to pay yet more: Start cutting subsidies to businesses and the rich. Let’s cut out the big-business subsidy machine, the Export-Import Bank. Let’s get rid of farm subsidies. Let’s tell affluent people who build houses in coastal flood areas to pay for their own flood insurance at market prices.
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