Archive for October, 2011
Federal Workers’ Compensation Incompetence
A recent report from the U.S. Postal Service’s inspector general found that workers’ compensation costs for postal employees are unnecessarily high. The reasons according to the audit are stale federal laws and bureaucratic ineptitude at the USPS and the Department of Labor.
The DOL administers workers’ compensation claims for federal employees – including postal employees – under the Federal Employees’ Compensation Act (FECA). Workers’ compensation costs the USPS over a $1 billion a year and it pays the DOL millions of dollars in administrative fees. According to the audit, “the Postal Service’s average workers’ compensation cost per employee workhour was 95 cents compared to the private sector range of 42 to 67 cents.” The inspector general estimates that the USPS could conservatively save $335 million a year if it kept its workers’ compensation costs in line with the private sector.
That’s the insurmountable problem: the government isn’t a private sector business. The latter has to control its costs and please its customers. In contrast, the federal government obtains its revenues through coercion and force, and its ability to spend is only limited by how much it can confiscate and borrow.
A couple of examples from the audit illustrate the difference:
When claimants’ conditions are expected to be long-term or permanent, settlements and buyouts are commonly used by the private sector to reduce workers’ compensation costs and long-term liabilities. For example, benchmarking results revealed that one company settled 906 of 5,400 active workers’ compensation cases. FECA does not allow settling of workers’ compensation cases except for those that involve third-party liability.
Arbabsiar Plot Still Makes No Sense
Manssor Arbabsiar
I was as shocked as most other people to hear Tuesday the Department of Justice unveiling charges against Manssor Arbabsiar, a 56-year old Iranian-American apparently linked to Iran’s Quds Force. If the facts as described in the government’s complaint [.pdf] were part of a crime novel I were editing, I’d tell the author it was far too outlandish and to do some more research. Now we’re finding out that the administration itself had “expressed concern that the plot’s cartoonish quality would invite suspicions and conspiracy theories.”
And cartoonish it was. I had figured that maybe I was the only one who thought the government’s story was shot through with gaping holes, but now I read that basically the entire roster of non-neoconservative Iran watchers can’t make sense of the plot.
For their part, reflexive hawks have taken the news in stride. James Jay Carafano explained that this is what happens when you act like Jimmy Carter, and the neocons’ Foundation for the Defense of Democracies has essentially taken over the WSJ op-ed page. (As one wag noted, the WSJ’s unsigned editorial invoked 9/11 in the first sentence.) But note the lack of critical thought in these pieces. Reuel Marc Gerecht uses the story as the latest hook for his “let’s bomb Iran” shtick, and another FDD/WSJ offering even says that “though details of the plot are still scarce,” “[t]o doubt the Iranian regime’s responsibility in the thwarted attack is to misunderstand its nature, or to somehow fall prey to the delusion that when an Iranian connection appears behind a terror plot, its perpetrators have gone rogue or are acting on behalf of some dark faction to undermine a nonexistent ‘moderate’ camp within the regime.” Well, maybe, but I like details.
I think there’s a pretty strong case for revisiting our assumptions about Iran, provided somebody can fill in the aforementioned holes. I had a bit more of a critical piece in CNN International, asking a number of questions that I’d like to see answered before deciding anything. I’ll just share with you one question I asked:
the accused seem to have believed that the [Mexican drug cartel the] Zetas would blow up [Saudi Ambassador Adel] al-Jubeir (and potentially a hundred people nearby, explicitly including possible U.S. senators) having only been fronted $100,000 of the $1.5 million payoff, and holding Arbabsiar as collateral.
There’s little evidence that the Zetas are stupid enough to cause themselves the trouble that blowing up a Washington restaurant containing the Saudi Ambassador and a hundred others would inevitably cause — especially for a potential payday of only $100,000 and a dead Iranian operative. Why did Arbabsiar or the IRGC think that the Zetas would be willing to do this deal?
To my mind, this is the biggest question out there, but I raise several others. For my provisional thoughts on the story, have a look at that piece.
New Video Has Important Message: Freedom and Prosperity vs. Big Government and Stagnation
The folks from the Koch Institute put together a great video a couple of months ago looking at why some nations are rich and others are poor.
That video looked at the relationship between economic freedom and various indices that measure quality of life. Not surprisingly, free markets and small government lead to better results.
Now they have a new video that looks at recent developments in the United States. Unfortunately, you will learn that the U.S. is slipping in the wrong direction.
The entire video is superb, but there are two things that merit special praise, one because of intellectual honesty and the other because of intellectual effectiveness.
1. The refreshingly honest aspect of the video is its non-partisan tone. It explains, in a neutral fashion, that Bush undermined prosperity by making government bigger and that Obama is undermining prosperity by increasing the burden of government.
2. The most important and effective argument in the video, at least from my perspective, is that it shows clearly that a larger government necessarily comes at the expense of the productive sector of the economy. Pay extra-close attention around the 2:00 mark.
It’s also worth pointing out that there are several policies that impact on economic performance. The Koch Institute video focuses primarily on the key issues of fiscal policy and regulation, but trade, monetary policy, property rights, and rule of law are examples of other policies that also are very important.
This video, narrated by yours truly, looks at economic growth from this more comprehensive perspective.
The moral of the story from both videos is very straightforward. If the answer is bigger government, you’ve asked a very strange question.
RomneyCare: Making a Fool of Every Republican It Touches Since 2006
New Jersey Gov. Chris Christie’s (R) hearts former Massachusetts Gov. Mitt Romney (R), so much that Christie says it is ”completely intellectually dishonest” to compare RomneyCare to ObamaCare. Why? Because Romney didn’t raise taxes, and President Obama did. Oh.
Avik (pronounced O-vik) Roy explains how Christie gets RomneyCare so very, very wrong:
There isn’t a single person, left or right, who follows health policy seriously who disagrees with the assertion that Romneycare was the model for Obamacare. And Massachusetts has had to raise taxes, after Romney left office, to pay for the law’s significant cost overruns.
Here are some examples, left and right. But Roy o-mits a few important points.
- Mitt Romney increased taxes the moment he signed RomneyCare. RomneyCare increased net government spending. That in itself is an increase in the tax burden. All that remains to be determined is who will pay for that added spending and when they will pay it. The fact that the incidence of that added tax burden fell after Romney left office does not mean that’s when the added tax burden was created.
- Mitt Romney has raised taxes on as many people as Barack Obama has. Half of RomneyCare’s new spending was financed by the federal government through the Medicaid program, which is financed through federal taxes, which fall on taxpayers in all 50 states. That means that when Romney financed half of RomneyCare’s new spending by pulling down more federal Medicaid dollars, he increased taxes on residents of all 50 states.
- RomneyCare was born of, and expanded, a corrupt scheme by Massachusetts politicians to tax residents of all 50 states. What motivated Romney to enact RomneyCare, as former Romney/Obama adviser Jonathan Gruber explains here, was the widespread desire (within Massachusetts) to hang on to $385 million of federal Medicaid money that Massachusetts had secured using one of Medicaid’s notorious and fraudulent “provider tax” scams. In other words, the whole purpose of RomneyCare was to enable Massachusetts to hold on to $385 million that it received by defrauding and taxing residents of other states. And of course, Romney/RomneyCare caused the tax burden that Massachusetts effectively imposes on non-Massachusetts residents to grow.
Christie is so laughably wrong about RomneyCare that one cannot help but smile that his remarks came during the same news cycle as this:
Newly obtained White House records… show that senior White House officials had a dozen meetings in 2009 with three health-care advisers and experts who helped shape the health care reform law signed by Romney in 2006…One of those meetings, on July 20, 2009, was in the Oval Office and presided over by President Barack Obama, the records show.
“The White House wanted to lean a lot on what we’d done in Massachusetts,” said Jon Gruber, an MIT economist who advised the Romney administration on health care and who attended five meetings at the Obama White House in 2009, including the meeting with the president. “They really wanted to know how we can take that same approach we used in Massachusetts and turn that into a national model”…
Romney said the people involved in the White House meetings were “consultants,” not “aides”…
[Gruber said,] “If Mitt Romney had not stood up for this reform in Massachusetts … I don’t think it would have happened nationally. So I think he really is the guy with whom it all starts.”
All of which is pretty much what my colleague/boss David Boaz and I have been saying since April 2010 in this well-worn Cato video:
Frederick Douglass and the Movement for Liberation
Famed orator, abolitionist, and writer Frederick Douglass was one of history’s greatest champions of individual liberty and equal rights.
Robert McDonald is an Assistant Professor of History at the U.S. Military Academy at West Point. This lecture was recorded on July 27, 2011 at Cato University in Annapolis, Maryland.
María Corina Machado: A Breath of Fresh Air in Venezuela
Yesterday I wrote that the opposition in Venezuela seems determined to maintain the economic model installed by Hugo Chávez that fosters people’s dependency on government. I should’ve written “most of the opposition,” since there is a remarkable exception in the field of presidential candidates: Congresswoman María Corina Machado.
At a rally yesterday in a working class neighborhood of Caracas, and surrounded by unlicensed street vendors, female small business owners and young followers, Machado launched her political platform called “People’s Capitalism,” under which, she said, “Venezuela will leave behind the entitlement model in order to build true prosperity for its citizens.” This is a breath of fresh air from the usual Venezuelan political discourse that stresses the government’s central role in redistributing the country’s oil riches. In fact, just the use of the word “capitalism” is extremely daring in a nation where free market ideas have been consistently disparaged by President Chávez and his acolytes for over a decade.
In her speech, Machado attacked socialism as a model that perpetuates poverty by demeaning people and creating dependency. She explained that her platform is based on trust in the creative capacity of the individual. As for the role of government, Machado said that it must provide the legal framework that stimulates entrepreneurship and eliminates regulatory obstacles so that people in the informal economy—such as the vendors she was addressing—can join the formal economy. She also offered a strong defense of private property by saying that “if you can’t own the fruit of your labor, then you don’t own your labor and thus you aren’t free.”
Despite being elected to the National Assembly last year with the greatest number of votes in all Venezuela, Machado is a long shot to win the nomination for the Coalition for Democratic Unity. However, her commitment to free market ideas is a welcome departure from the other opposition candidates who seem interested in perpetuating Venezuela’s entitlement culture.
Machado spoke at a Cato Policy Forum two years ago on the failure of social policy in Venezuela. She also recorded a podcast for us on Hugo Chávez’s crackdown on political dissent.
Gaming Out the Supreme Court GPS Tracking Case
In November, an important case before the Supreme Court—United States v. Antoine Jones—will take up the question of whether the warrantless GPS tracking of an automobile violates the Fourth Amendment’s prohibition on unreasonable searches and seizures. (Our colleague Jim Harper has penned an excellent amicus brief arguing that it does.) This comes as the press have focused increasingly on the legally controversial practice of using cell phones and other location-aware mobile devices to track suspects. Perhaps unsurprisingly, both the press and many civil liberties advocates are linking these issues together. But it’s important to recognize that they’re actually distinct in many ways: What implications this ruling has for location tracking of phones will depend crucially on why they decide the way they do, because of the differences in the technologies involved. So I want to consider several possible outcomes in the Jones case, and what implications they would have for the broader question of location tracking under the Fourth Amendment.
Just to review the facts: This case involved a drug trafficking suspect on whose car the police surreptitiously installed a GPS tracking device, which they proceeded to monitor for nearly a month, giving them a map of the car’s movements 24 hours a day during the period. Police had sought a court order authorizing the installation, but they installed it outside the jurisdiction covered by the order, and after the order had already expired. Two cases from the early 80s involving more primitive tracking technology—Knotts and Karo—suggest that the constitutional line is at the boundary between public spaces: Tracking a person or their property into a private location, such as a residence, is a Fourth Amendment “search” requiring a warrant, but monitoring limited to the public movements of (say) a vehicle is not, because we have no “reasonable expectation of privacy” in activities that we “knowingly expose” to the general public. (As an intuitive test of this reasoning, ask yourself if, upon finding a GPS tracker that had been affixed to your private car weeks or months ago, you would really react in the same way as if you’d been told another driver had observed some particular commute.)
Still, there are important differences between the tracking technology in use when those cases were decided and modern GPS tracking devices, and still further differences between those and the various forms of cell phone location tracking. As an amicus brief authored by technology experts stresses, the “beepers” used in Knotts were rather like short-range geiger counters: They were a supplement to ordinary visual surveillance by police, who still had to follow along, observe where the suspects went, and record their observations. The beepers just ensured that the suspect would not lose the “tail.” In practice, the extent of such monitoring would have to be pretty similar to what any person could normally achieve by unassisted observation—limited in scope, duration, and (crucially) the number of people who could simultaneously be monitored. Tracking via GPS is potentially far more sweeping.
PolitiFact Just Asked Me to Be a Source, Again. I Declined, Again.
The last time this happened, I blogged that I “declined to help” PolitiFact. That’s actually not true. The whole purpose of my PolitiFact boycott is to help them.
Solyndra: Peeling Back the Layers
As I noted previously, the story of the taxpayers’ failed $535 million subsidy to the Solyndra company just keeps building as reporters keep digging. When the Democrats on the House and Energy Commerce Committee released selected emails from the Obama administration, I asked one reporter:
If OMB and Obama’s California campaign co-chair, the former California state treasurer, were trying to put the brakes on the Solyndra enthusiasm, who had his foot on the gas?
Could the answer have been merely Steven J. Spinner, “a senior Energy Department adviser … a major fundraiser for President Obama and a Silicon Valley investor tasked with helping the government invest in clean-technology companies [who] had an ethical conflict: His wife worked for Wilson Sonsini, a California law firm that represented Solyndra, the solar-panel maker, in its applications for the government loan”? Spinner is now a senior fellow at the Obama-adjunct Center for American Progress, where as recently as July he was writing, “Even the most controversial loan guarantee recipient—Solyndra, a solar manufacturer—is seeing an operational turnaround” in an article pushing for continued funding of the Department of Energy’s Loan Guarantee Program. But he’s not the sole source of the enthusiasm for “green energy” and stimulus spending, which obviously went to the top of the administration.
Some have tried to dismiss the Solyndra story. Private investors make plenty of mistakes, too, they point out. Companies fail, sometimes through no fault of their own. But this story has all the hallmarks of government decision making: officials spending other people’s money with little incentive to spend it prudently, political pressure to make decisions without proper vetting, the substitution of political judgment for the judgments of millions of investors, the enthusiastic embrace of fads like “green energy,” political officials ignoring warnings from civil servants, crony capitalism, close connections between politicians and the companies that benefit from government allocation of capital, the appearance — at least — of favors for political supporters, and the kind of promiscuous spending that has delivered us $14 trillion in national debt. It may end up being a case study in political economy.
Here’s an updated rundown of how the first rough draft of Solyndra history is playing out before our eyes:
Obama-Lee Summit: Time for New Thinking on the Korean Peninsula
Three issues are likely to dominate the talks this week between President Obama and South Korean President Lee Myung-bak. On the economic front, the two leaders will emphasize the extensive potential benefits of the bilateral free trade agreement.
On the security front, there will be considerable discussion of both North Korea’s nuclear-weapons program and the future of the U.S.-South Korean alliance. Unfortunately, leaders of the two countries are locked into increasingly obsolete and dysfunctional policies with respect to both issues. New thinking on those security matters is badly needed.
Seoul and Washington routinely contend that they will not tolerate North Korea having a nuclear arsenal. But other than the long-standing attempt to isolate Pyongyang internationally, U.S. and South Korean officials present no plausible strategy for preventing Kim Jong-il’s regime from expanding its nuclear capabilities. The much-touted six-party talks clearly have not worked. Moreover, without China’s active cooperation to deny crucial food and energy aid to North Korea (and there is no indication that Beijing is willing to take that step), North Korea cannot be truly isolated. Obama and Lee need to consider the possibility of learning to live with a nuclear North Korea, since the current U.S.-South Korean strategy for dealing with the nuclear issue is hopelessly ineffectual.
Policy regarding the bilateral security alliance is no better. Predictably, Lee and Obama will reaffirm the importance of that alliance. But from the standpoint of American interests, this commitment makes little sense. The principal effect of Washington’s security blanket for South Korea is to enable that country to shamelessly free-ride on America’s military exertions. Despite being located next to perhaps the most dangerous and unpredictable country in the world—Kim Jong-il’s North Korea—South Korea continues to spend an anemic 2.5 percent of its gross domestic product on defense. That is woefully inadequate, and the only reason Seoul can get away with such irresponsible behavior is that South Korean leaders believe they can rely on the United States to take care of their country’s security—at the expense of American taxpayers.
That arrangement was dubious even when South Korea was a weak, traumatized country facing a North Korea strongly backed by both the Soviet Union and Communist China. Today, South Korea is a wealthy country, and Moscow and Beijing regard North Korea as an embarrassment, not a crucial ally.
President Obama should inform Lee that an America whose government is hemorrhaging red ink at the rate of $1.5 trillion a year can no longer afford to subsidize the defense of free-riding allies—especially those that are perfectly capable of providing for their own defense. This summit meeting creates an opportunity for Washington to begin phasing-out the obsolete military alliance with South Korea.
Look Before You Leap on Cain’s 9-9-9 Tax Plan
I like the overall approach of Herman Cain’s 9-9-9 tax plan. As I recently wrote, it focuses on lower tax rates, elimination of double taxation, and repeal of corrupt and inefficient loopholes.
But I included a very important caveat. The intermediate stage of his three-step plan would enable politicians to impose both an income tax and a national sales tax. I wrote in my earlier post that I had faith in Herman Cain’s motives, but I was extremely uncomfortable with the idea of letting the crowd in Washington have an extra source of revenue.
After all, Europe’s welfare states began their march to fiscal collapse and economic stagnation after they added a version of a national sales tax on top of their pre-existing income taxes.
But it seems that I was too nice in my analysis of Mr. Cain’s plan. Josh Barro and Bruce Bartlett are both claiming that the business portion of Cain’s 9-9-9 is a value-added tax (VAT) rather than a corporate income tax.
In other words, instead of being a 9 percent flat tax-9 percent sales tax-9 percent corporate tax, Cain’s plan is a 9 percent flat tax-9 percent sales tax-9 percent VAT.
Let’s elaborate. The business portion of Cain’s plan apparently does not allow employers to deduct wages and salaries, which means — for all intents and purposes — that they would levy a 9 percent withholding tax on employee compensation. And that would be in addition to the 9 percent they presumably would withhold for the flat tax portion of Cain’s plan.
Employers use withholding in the current system, of course, but at least taxpayers are given credit for all that withheld tax when filling out their 1040 tax forms. Under Cain’s 9-9-9 plan, however, employees would only get credit for monies withheld for the flat tax.
In other words, there are two income taxes in Cain’s plan — the 9 percent flat tax and the hidden 9 percent income tax that is part of the VAT (this hidden income tax on wages and salaries, by the way, is a defining feature of a VAT).
This doesn’t make Cain’s plan bad from a theoretical perspective. The underlying principles are still sound — low tax rates, no double taxation, and no loopholes.
But if I was uneasy when I thought that the 9-9-9 plan added a sales tax on top of the income tax, then I am super-duper-double-secret-probation uneasy about adding a sales tax and a VAT on top of the income tax.
Here’s my video on the VAT, which will help you realize why this pernicious tax would be a big mistake.
Again, this doesn’t make Cain wrong if we’re grading based on economics or philosophy. My anxiety is a matter of real-world political analysis. I don’t trust politicians with new sources of revenue. Whether we give them big new sources of revenue or small new sources of revenue, they will always figure out ways of pushing up the tax rates so they can waste more money trying to buy votes.
Gov. Perry and Those DREAM Act Kids
Texas Gov. Rick Perry has been beaten up in recent GOP presidential primary debates over his signing of a bill in 2001 giving in-state tuition to illegal immigrant kids in Texas. Look for the issue to come up again at tonight’s debate in New Hampshire.
In a free society, so-called DREAM Act legislation would be unnecessary. Opportunities for legal immigration would be open wide enough that illegal immigration would decline dramatically. And higher education would be provided in a competitive market without state and federal subsidies. But that is not yet the world we live in.
On the federal level, the proposed Development, Relief and Education for Alien Minors Act would offer permanent legal status to illegal immigrant children who graduate from high school and then complete at least two years of college or serve in the U.S. military. Legal status would allow them to qualify for in-state tuition in the states where they reside, and would eventually lead to citizenship.
Those who respond that such a law would amount to “amnesty” for illegal immigrants should keep a couple of points in mind.
First, kids eligible under the DREAM Act came to the United States when they were still minors, many of them at a very young age. They were only obeying their parents, something we should generally encourage young children to do.
Second, these kids are a low-risk, high-return bet for legalization. Because they came of age in the United States, they are almost all fluent in English and identify with America as their home (for many the only one they have ever known). “Assimilation” will not be an issue.
They also represent future workers and taxpayers. The definitive 1997 study on immigration by the National Research Council, The New Americans, determined that an immigrant with some college education represents a large fiscal gain for government at all levels. Over his or her lifetime, such an immigrant will pay $105,000 more in taxes than he or she consumes in government services, on average and expressed in net present value (see p. 334). In other words, legalizing an immigrant with post-secondary education is equivalent to paying off $105,000 in government debt.
According to estimates by the Immigration Policy Center, the DREAM Act as introduced in 2009 would offer immediate legalization to 114,000 young illegal immigrants who have already earned the equivalent of an associate’s degree. Another 612,000 who have already graduated from high school would be eligible for provisional status and would then have a strong incentive to further their education at the college level to gain permanent status. If all 726,000 of them studied at college and became legal permanent residents, it would be equivalent to retiring $76 billion of government debt.
In all, a potential 2.1 million kids could eventually be eligible for permanent legal residency under terms of the DREAM Act, representing a potential fiscal windfall to the government of more than $200 billion. Not to mention their potential contributions to our culture and economy.
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