Archive for August, 2011
Terminating the Small Business Administration
An essay on terminating the Small Business Administration has been added to Cato’s Downsizing Government website.
Some highlights:
- Established in 1953, the agency had earned the nickname “Small Scandal Administration” by the mid-70s. President Reagan’s budget director, David Stockman, called it a “billion dollar waste—a rat hole” that benefited few small businesses, while distorting credit markets. Unfortunately, both Republicans and Democrats have continued to support it.
- The SBA guarantees loans issued by private lenders for up to 85 percent of losses in the event that loan recipients default. As a result of the guarantee, lenders are more willing to lend money to riskier applicants because the SBA is ultimately responsible for the bulk of any losses. The SBA is supposed to charge fees sufficient to require no annual appropriations from Congress. However, that has not been the case, and its lending programs continue to rely on taxpayer subsidies.
- Policymakers argue that market-driven lending denies credit to worthy small businesses, and so the Small Business Administration must correct this alleged “market failure.” The essay explains that there is no “market failure” to justify the SBA’s lending programs.
- Only small shares of small businesses get started with a loan from a commercial lender. Furthermore, loans issued by commercial lenders that are backed by the SBA represent only a very small share of total commercial loans to small businesses.
- The SBA’s lending programs benefit a powerful special interest group: the banking industry. The banking industry was originally opposed to the creation of the SBA on the grounds that the federal government should not be involved in commercial lending. However, when the SBA switched from direct lending to backing loans issued by private lenders, the banking industry became a key supporter of the SBA.
A Bit of Good Economic News: U.S. Still ‘On Track’ to Double Exports by 2014
This morning’s monthly trade report from the Commerce Department will likely only add to the growing pessimism about the U.S. economy. The trade deficit in June widened from the month before, which we are told endlessly (as in this morning’s AP dispatch) is a “subtraction” from GDP, even though my April Cato Trade Policy Analysis showed why that just isn’t so.
Exports did take a hit for the month, falling 2.3 percent from the month before. But here is a bit of good news to hold on to from the report: U.S. exports of goods and services are still on track to double from 2009 through 2014.
Doubling U.S. exports over those five years was the goal President Obama set when he unveiled his National Export Initiative in his State of the Union Address in January 2010. As the accompanying chart shows, even with the decline in June, total exports for the previous 12 months added up to almost $2 trillion. That still represents an annualized growth rate from the base year of 2009 that is slightly ahead of the rate needed to double exports by 2014.
Maintaining this rate of growth for the next three and a half years will be a daunting task, as I explained here. The administration and Congress should still take concrete, free-market steps to promote more exports and expand trade overall, such as keeping the U.S. market open for imports, avoiding a trade war with China, and enacting long-stalled trade agreements with South Korea and Colombia. (Note I did not include more funding for the Export-Import Bank on the list, with my Cato colleague Sallie James providing the reasons why in a recent study.)
Medicare Fraud: Et Tu, Reverend?
From today’s Los Angeles Times:
On Tuesday, a jury found [south Los Angeles pastor Christopher] Iruke, his wife and an employee who worked for the couple guilty of healthcare fraud and conspiracy to commit fraud…
Authorities said Iruke and associates often supplied power wheelchairs to Medicare patients perfectly capable of walking on their own —including one who did jumping jacks to show agents he never needed one. Also among the patients Iruke and his associates filed reimbursement claims for were two people who were deceased, according to court papers…
After purchasing the wheelchairs at about $900 wholesale and paying for the prescriptions, he pocketed the remainder of about $6,000 in taxpayer money he received as Medicare reimbursements, according to court documents. The pastor operated four medical equipment supply companies between May 2002 and September 2009 as part of the scheme, according to authorities.
In all, Iruke’s companies filed for $14.2 million in claims and received about $6.6 million in reimbursements.
The money funded a lavish lifestyle, including several luxury cars, international travel, and about half a million dollars of remodeling on his Baldwin Hills home, prosecutors contended in trial…
The case was brought as part of a federal strike force on Medicare fraud, which has resulted in charges against more than 1,000 people across the country who billed the program $2.3 billion, according to a Department of Justice press release.
Apologies for the long excerpt, but this stuff is fascinating for several reasons. The ease with which these folks defrauded Medicare. The vast gulf between the market price for a wheelchair ($900) and what Medicare pays ($6,000) — which practically begs people to defraud the program. The fact that DOJ pats itself on the back for nabbing the perpetrators of $2.3 billion of fraudulent billings even though that represents a much smaller number of fraudulent payments, which in turn account for a teeny-tiny share of the official estimate that Medicare loses $48 billion to fraud and other improper payments per year, which itself understates the extent of fraud in the program.
As I explain in this article and the below video, the extent of Medicare and Medicaid fraud is truly mind-blowing.
ObamaCare will bring even more fraud. And efforts to combat Medicare, Medicaid, and ObamaCare fraud will always be inadequate until Congress reforms or scraps these entitlement programs.
Behavior Detection as Interrogation
With the Department of Homeland Security constantly spinning out new projects and programs (plus re-branded old ones) to investigate you, me, and the kitchen sink, it’s sometimes hard to keep up. But I was intrigued with a report that behvaior detection officers are getting another look from the Transportation Security Administration. Behavior detection is the unproven, and so far highly unsuccessful (Rittgers, Harper), program premised on the idea that telltale cues can reliably and cost-effectively indicate intent to do harm at airports.
But there’s a new behavior detection program already underway. Or is it interrogation?
Due to a bottleneck at the magnetometers in one concourse of the San Francisco airport (no strip-search machines!), I recently had the chance to briefly interview a Transportation Security Administration agent about a new security technique he was implementing. As each passenger reached him, he would begin to examine the traveler’s documentation and simultaneously ask the person’s last name. He confirmed to me that the purpose was to detect people who did not immediately, easily, and accurately respond. In thousands of interactions, he would quickly and naturally learn to detect obfuscation on the part of anyone carrying an ID that does not have the last name they usually use.
As a way of helping to confirm identity, it’s a straightforward and sensible technique. Almost everyone knows his or her last name, and quickly and easily repeats it. The average TSA agent with some level of experience will fluently detect people who do not quickly and easily repeat the name on the identity card they carry. The examination is done quickly. This epistemetric check (of a “something-you-know” identifier—see my book, Identity Crisis) occurs during the brief time that the documents are already getting visual examination.
Some people will not repeat their name consistent with custom, of course. The hard of hearing, speakers of foreign languages, people who are very nervous, people who have speech or other communication impediments, and another group of sufferers—recently married women—may exhibit “suspicious” failure to recite their recently changed surnames. Some of these anomalies TSA agents will quickly and easily dismiss as non-suspicious. Others they won’t, and in marginal cases they might use non-suspicious indicia like ethnicity or rudeness to adjudge someone “suspicious.”
The question whether these false positives are a problem depends on the sanction that attaches to suspicion. If a stutterer gets a gauntlet at the airport each time he or she fails to rattle off a name, the cost of the technique grows compared to the value of catching … not the small number of people who travel on false identification—the extremely small number of people who travel on false identification so as to menace air transportation.
The Morality of Capitalism
Capitalism deserves a moral defense, but even those who appreciate the moral superiority of capitalism sometimes find themselves ill-equipped to offer a clear response to critics.
A new book from the Atlas Economic Research Foundation, Students for Liberty and the John Templeton Foundation aims to provide just that intellectual ammunition. The Morality of Capitalism, edited by Cato Senior Fellow Tom G. Palmer, gathers a diverse group of scholars, writers and business leaders from across the globe to extoll the virtues of capitalism.
I recorded a quick podcast (Subscribe!) with Tom about the book and its authors.
Student groups can get bulk copies shipped to them from Students for Liberty.
$0.55 of Every Consumer Dollar Spent on Imports from China Goes to U.S. Transporters, Wholesalers, and Retailers
First there was the “iPod Paper.” That now-iconic study found that Chinese inputs amount to only $6 of the $150 cost of producing an Apple iPod, yet the entire $150 is chalked up as an import from China. Then there were spin-off studies for the iPhone and iPad (described and editorialized here), reaching similar conclusions. This week the Federal Reserve Bank of San Francisco published an excellent contribution to the growing body of literature supporting the conclusion that “Made in China” labeling and trade flow statistics, more broadly, are farcically uninformative and dangerously misleading.
In light of next month’s start to what is likely to be 14 months of nastier-than-usual China-bashing from unions, paid advocates of protectionism, politicians running from the real issues, and other shallow thinkers, the new Fed paper is a timely and welcomed addition for those of us in the business of presenting fact- and logic-based arguments.
Among the study’s findings are:
- Despite globalization, the U.S. economy “actually remains relatively closed.” (By “relatively closed,” the authors mean that imports are puny compared to the size of the economy—not that U.S. policies are relatively restrictive of imports.)
- The vast majority of goods and services purchased by U.S. consumers (88.5%) is produced in the United States
- When accounting for the value of foreign content in final U.S. production of goods and services, 86.1% of U.S. consumer purchases of goods and services is produced in the United States.
- Of the 11.5% of total U.S. consumer spending on imports, 64% accounts for the goods and services produced abroad and 36% accounts for transportation, wholesaling, retailing and other activities performed in the United States.
- Only 2.7% of U.S. consumer spending is devoted to goods labeled “Made in China.”
- Of the 2.7% of U.S. consumer spending on imports from China, only 45% is for the foreign-produced good and 55% goes to transportation, wholesaling, retailing, and other activities performed in the United States. In other words, $.55 of every dollar spent on imports from China directly supports economic activity in the United States.
This Cato paper gives broader perspective to the findings of the aforementioned studies.
English Riots, Moral Relativism, Gun Control, and the Welfare State
I wrote earlier this year about the connection between a morally corrupt welfare state and the riots in the United Kingdom.
But what’s happening now is not just some left-wing punks engaging in political street theater. Instead, the UK is dealing with a bigger problem of societal decay caused in part by a government’s failure to fulfill one of its few legitimate functions: protection of property.
To make matters worse, the political class has disarmed law-abiding people, thus exacerbating the risks. These two photos are a pretty good summary of what this means. On the left, we have Korean entrepreneurs using guns to defend themselves from murdering thugs during the 1992 LA riots. On the right, we have Turkish entrepreneurs reduced to using their fists (and some hidden knives, I hope) to protect themselves in London.
Which group do you think has a better chance of surviving when things spiral out of control? When the welfare state collapses, will the Koreans or the Turks be in a better position to protect themselves? And what does it say about the morality of a political class that wants innocent people to be vulnerable when bad government policies lead to chaos?
Speaking of chaos, let’s look at the “root causes” of the riots and looting in the United Kingdom.
Allister Heath is the editor of City A.M. in London, and normally I follow his economic insights, but his analysis of the turmoil is superb as well. Here’s an excerpt. But as Instapundit likes to say, read the whole article.
Debilitating, widespread fear. The country held to ransom by feckless youths. Thousands of shocked Londoners cowering in their homes, with many shops, banks and offices shutting early. …It no longer feels as if we live in a civilised country. The cause of the riots is the looters; opportunistic, greedy, arrogant and amoral young criminals who believe that they have the right to steal, burn and destroy other people’s property. There were no extenuating circumstances, no excuses. …decades of failed social, educational, family and microeconomic policies, which means that a large chunk of the UK has become alienated from mainstream society, culturally impoverished, bereft of role models, permanently workless and trapped and dependent on welfare or the shadow economy. For this the establishment and the dominant politically correct ideology are to blame: they deemed it acceptable to permanently chuck welfare money… Criminals need to fear the possibility and consequence of arrest; if they do not, they suddenly realise that the emperor has no clothes. At some point, something was bound to happen to trigger both these forces and for consumerist thugs to let themselves loose on innocent bystanders. …the argument made by some that the riots were “caused” or “provoked” by cuts, university fees or unemployment is wrong-headed. …the state will spend 50.1 per cent of GDP this year; state spending has still been rising by 2 per cent year on year in cash terms. It has never been as high as it is today – in fact, it is squeezing out private sector growth and hence reducing opportunities and jobs. …This wasn’t a political protest, it was thievery. …We need to see New York style zero tolerance policing, with all offences, however minor, prosecuted. But what matters right now is to regain control, to stamp out the violence and to arrest, prosecute and jail as many thugs as possible. The law-abiding mainstream majority feels that it has been abandoned and betrayed by the establishment and is very, very angry.
School Snatchers Invasion Confirmed!
The good news: Supporters haven’t been able to completely stamp out debate over national curriculum standards. The bad news: The Invasion of the School Snatchers strategy is real, and it is working!
Yesterday, I blogged about a letter from Jeb Bush reportedly causing a subcommittee of the American Legislative Exchange Council to table model legislation opposing national standards. Subsequent to my writing that, a follow-up Education Week post reported that debate wasn’t, in fact, quashed by Bush’s letter. Unfortunately, it appears consideration was postponed for another reason: Most state legislators have no idea what’s going on with national standards:
“Legislators have heard of it, but not a whole lot of states engage legislators in discussion of the common core,” said [John Locke Foundation education analyst Terry] Stoops, who describes himself as a common-core opponent. “Some wanted to know more about it, because state education agencies or state boards of education didn’t give them much information, if any, on the common core.”
If this is accurate, it confirms exactly what I’ve been saying for months: Despite being told that the national standards drive is “state-led,” the people’s representatives have been frozen out of it. Worse, it suggests that national-standardizers’ strategy of sneaking standards in is working.
Adding to confirmation of this school-snatcher strategy is a recent blog post from the Fordham Institute’s Michael Petrilli. At first I was heartened: Petrilli, a flag officer in the national standards campaign, was renouncing Secretary of Education Arne Duncan’s intent to make national-standards adoption a requirement to get waivers from No Child Left Behind. Perhaps, I thought, I’d gotten my first taker in the Demand Real Voluntarism Challenge. But then it sank in: Petrilli wasn’t demanding that Washington stop perpetuating the voluntarism sham. No, he was afraid something as un-stealthy as high-profile waiver demands would suddenly direct much-unwanted attention to the school-snatcher invasion:
The only possible outcome of Secretary Duncan putting more federal pressure on the states to adopt the Common Core is [to] stoke the fires of conservative backlash–and to lose many of the states that have already signed on.
Hopefully that is exactly what will happen, and both the unconstitutional waivers, and the snatchers strategy, will get all the negative attention they deserve.
Charity and the Federal Government
David Boaz’s post on bizarre and utterly preposterous claims that the federal government’s “social safety net” has been shrinking brought to my mind James Madison’s position that “Charity is no part of the legislative duty of the government.”
“The Father of the Constitution” wasn’t being cold-hearted when he took this position during a 1794 debate in the House of Representatives over federal aid to refugees. Rather, he was merely recognizing that “the government of the United States is a definite government, confined to specified objects.” Charity just wasn’t one of the specified objects. Of course, future politicians decided otherwise.
Today, most young Americans grow up in federally subsidized schools offering federally subsidized meals. They are inculcated to view the federal government as a benevolent caregiver that exists to provide Americans with housing, food, health care, and even income (to name just a few). Madison’s unfortunately quaint notion that the federal government isn’t supposed to be engaged in “charitable” activities would probably leave them dumbfounded.
I single out children because this week a private charity that I am involved with, the Purple Feet Foundation, is giving select inner-city sixth graders an opportunity to take hold of their futures now. Instead of promoting dependency, these kids will spend the week engaged in educational activities that will hopefully inspire them to utilize their individual talents to succeed in life. The Foundation does not seek, nor will it accept, taxpayer money. I believe this sets a good example for these kids.
Those of us who desire the limited federal government that Madison envisioned are often accused of being uncaring about those who are in need. In fact, the opposite is the truth: we recognize that government programs are wasteful, ineffective, and counterproductive to the aims that they are trying to achieve. As a Cato essay on federal welfare explains, private charity is superior to government programs for several reasons:
Private charities are able to individualize their approaches to the circumstances of poor people. By contrast, government programs are usually designed in a one-size-fits-all manner that treats all recipients alike. Most government programs rely on the simple provision of cash or services without any attempt to differentiate between the needs of recipients.
The eligibility requirements for government welfare programs are arbitrary and cannot be changed to fit individual circumstances. Consequently, some people in genuine need do not receive assistance, while benefits often go to people who do not really need them. Surveys of people with low incomes generally indicate a higher level of satisfaction with private charities than with government welfare agencies.
Private charities also have a better record of actually delivering aid to recipients because they do not have as much administrative overhead, inefficiency, and waste as government programs. A lot of the money spent on federal and state social welfare programs never reaches recipients because it is consumed by fraud and bureaucracy…
Another advantage of private charity is that aid is much more likely to be targeted to short-term emergency assistance, not long-term dependency. Private charity provides a safety net, not a way of life. Moreover, private charities may demand that the poor change their behavior in exchange for assistance, such as stopping drug abuse, looking for a job, or avoiding pregnancy. Private charities are more likely than government programs to offer counseling and one-on-one follow-up, rather than simply providing a check.
Kansas Returns a $32 Million ObamaCare Grant, Plus More Bad News for ObamaCare
The debt deal was none too kind to ObamaCare. Here’s more bad news for this misguided law:
- Kansas becomes the second state (after Oklahoma) to return to the federal government one of ObamaCare’s lavish “Early Innovator Grants.” Coming from Secretary of Health and Human Services Kathleen Sebelius’s home state, that’s gotta hurt.
- The latest ObamaCare eruption shows the law could cost $50 billion more per year than advertised. If anyone but the government sold you something like this, we’d put them in jail.
- Many of the same Democrats who said it wasn’t a benefit cut when ObamaCare ratcheted down the price controls that government uses to pay health care providers now say it is a benefit cut when states do that.
Disgraceful Soundbite from the London Riots
I don’t know which part of this truly dismaying interview is more upsetting: the joy in their voices as these girls describe the “fun” they are having at the riots and their hope that they continue the next day, the class-warfare-based justification they feel for the looting and burning of shops, or their almost comic ignorance of which party holds control of the government (“Conservatives. Yeah. Whatever who it is. I dunno…”).
Listen and Weep, courtesy of the Beeb.
Joseph Heller in the Pages of Inquiry
Fifty years ago, Joseph Heller published Catch-22, giving us a new idiom and forging a new perspective on the business of war. While other novels—such as Erich Maria Remarque’s All Quiet on the Western Front—stripped warfare of its romance, Catch-22 exposed it as just another form of the fundamental absurdity of bureaucracy. Writes Walter Kirn in Slate:
Then, that fall, Joseph Heller’s Catch-22 appeared, abruptly downgrading war’s special status as an existential crucible and also, unwittingly, beginning the process of rendering four-star male novelists irrelevant. The book treats war on a par with business or politics (to Heller they were very much the same), portraying it as a system for alienating people from their own interests and estranging them from their instincts. Protocol replaces principle, figures plucked from thin air supplant hard facts, and reason becomes rigamarole. Heller’s island airbase of freaked-out aviators oppressed by cuckoo officers is the ding-a-ling civilian world in microcosm, not an infernal, tragic realm apart. The men who can feel aren’t agonized, they’re addled. The ones who can’t feel (and therefore give the orders) are permanently, structurally annoyed. The naked and the dead are here but invisible to the beribboned and the daft.
In 1979, shortly after the release of Good as Gold, Charlie Reilly interviewed Heller for Inquiry magazine, then published by the Cato Institute. They discussed the new novel and its narrative structure, Heller’s humorist techniques, and how Heller deals in his writing with terrible, real-world events.
Q: Another thing that interested me was the effect that writing about the Vietnam War had upon you. It seemed apparent in Something Happened that you felt a sense of moral outrage over our role in the war, and in this one Gold seems to boil in rage at some aspect of it. Was it difficult to write about an issue that is so enraging and draining?
HELLER: No, and this is true of Catch-22 as well. When I’m writing, I am only interested in writing. Now when I’m not writing, I confess I can hear something that will make me boil over. A phrase that really gets to me, for instance, would be one of those neoconservative references to Vietnam as a national tragedy, but only because we lost. That thought fills me with ire. To begin with, the person who says it is typically untouched by tragedy; like me, he has not lost a son or a job. In addition, the implication is that if we had won, the war would have been somehow less tragic. People with that mentality, I have to admit, impress me as being the scum of the earth.
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