Archive for November, 2011
A Global Initiative for Drug Policy Reform
The Beckley Foundation has just launched an important initiative in Great Britain and their new website has a gold mine of research related to drug policy.
On Tuesday, Cato hosted a conference on Ending the Global Drug War (those talks coming online soon).
PPPs and Privatization for Infrastructure
I testified to the congressional Joint Economic Committee on Wednesday regarding infrastructure, which means roads, bridges, pipelines, railroads, and other such assets. Here are some of the points I raised:
- Private sector infrastructure spending in the United States is more than four times larger than federal, state, and local government infrastructure spending. Thus, if Congress wants infrastructure, it should remove barriers to private investment.
- Over the past 25 years, U.S. governments have spent about the same amount on infrastructure as a share of GDP as have other OECD countries, on average.
- Most federal infrastructure spending, outside of defense, goes toward activities that are state, local, and private in nature.
- A key problem with federal government involvement in infrastructure is that when it makes mistakes, it replicates those mistakes across the country. Think about the disastrous high-rise public housing projects built in dozens of cities in the 20th century. Or consider how the Obama administration is trying to impose its misguided high-speed rail vision on the states.
- Politics often results in federal infrastructure spending being misallocated. For example, a large share of Amtrak spending goes to rural states where passenger trains don’t make any economic sense.
- The way ahead is to devolve infrastructure spending to state and local governments and the private sector.
- The United States lags many advanced nations in the growing use of privatization and public-private partnerships (PPP) for infrastructure. PPP deals are basically half way to full privatization. They’ve got some drawbacks, but they are a step forward toward market-based investment for items such as roads and bridges.
- The industry reference guide for tracking PPP and privatization projects, Public Works Financing, includes only 2 American companies out of the 40 global companies that lead in these innovative projects.
- U.S. policymakers should be asking: What have other countries privatized that we can privatize in this country? The answer is: air traffic control, airports, seaports, and many other items. For roads and bridges, the states can look at Virginia’s progress in shifting toward private funding and management of its projects.
Pining for the Next War at the Washington Post?
If nothing else, the Washington Post is fairly consistent in its use of over-the-top headlines that promise so much more than the stories deliver. I’ve commented on this excessive reliance on hyperbole before, but today’s web page headline (at around 2:00 pm) — U.S.to Counter China with Troops in Australia* — warrants a few words.
The thrust of the story is that the U.S. military will establish a “permanent” presence of 250 troops in Darwin, Australia. Is reaffirmation of a U.S. commitment in the Pacific intended to send some kind of signal to China? Yes. But to counter what? China’s alleged expansionary designs? With 250 troops?
Sure, the Chinese government has asserted disputable and disputed territorial claims throughout the South China Sea and sure the Aussies and Filipinos and Indonesians and Vietnamese would love to devote their resources to economic growth while U.S. taxpayers pick up their security costs, but the headline gives the impression of imminent conflagration.
I am growing more confident that any confrontation between the United States and China — should that occur in the years ahead — is more likely to be the product of provocative media sensationalism intended to arouse U.S. nationalism than any real belligerence on the part of China.
* As of 2:25, the headline has been softened somewhat to “U.S. Troops Headed to Australia, Irking China.”
Cutting Military Spending, Rethinking Grand Strategy
The Associated Press’s Pauline Jelinek has a story on the wires/Interwebs today that pokes holes in Leon Panetta’s claim that Pentagon budget cuts on the order of those contemplated under the debt deal’s sequestration provisions would be “devastating to the department.” Jelinek quoted me, as well as the Center for American Progress’s Larry Korb, and the Center for Strategic and Budgetary Assessment’s Todd Harrison.
Assuming that sequestration will actually happen (a big if), I tried to put the possible cuts in perspective, given the significant increase in military spending over the past decade.
But we shouldn’t put the budgetary cart before the strategic horse. I have said on several occasions that we should not cut military spending without rethinking our strategic ends.
Although Ben Friedman recently made a strong case for using fiscal austerity to drive a change in our grand strategy, I still believe it possible — and wiser — to do this in the reverse order; rethink the strategy first, and then shape the force to fit the strategy.
As Ben has taught me, austerity is a good auditor, but it doesn’t require us to cut anything, or increase taxes on anyone. The current fiscal situation doesn’t even force us to choose to make any difficult decisions now — so long as we’re willing to borrow money to make up the difference. It is that latter point, however, that people are getting hung up on. And rightly so. We’re doing a disservice to our children and grandchildren by saddling them with these debts, and no reasonable plan for retiring them. August’s debt ceiling deal pits two different factions within the Republican Party against one another: budget hawks and tax cutters (OK to cut, not OK to raise taxes) vs. hawkish hawks (not OK to cut military spending, OK to tax increases). Within this battle, the fiscal hawks are OK with sequestration. The hawkish hawks are not.
Leaving the fiscal constraints on military spending to one side, the underlying strategic logic to my argument that we can responsibly cut military spending still holds. Cuts on the order of $800 billion, or even $1 trillion, would not pose a grave risk to U.S. security. Panetta’s claim that it would rests on the dubious assumption that a nation’s strategic ends are fixed. They are not. What the United States chooses to do to advance its security are just that: choices. Some are wise in retrospect. Others are foolish. Some are understood to be foolish before they are undertaken. But it need not be so ad hoc.
This was one of Barry Posen’s pleas in his article “The Case for Restraint.” Posen made the case for rethinking our strategic goals well before the present fiscal crisis. But he began by reminding readers of the importance of strategy, or, more simply, what grand strategy is:
A state’s grand strategy is its foreign policy elite’s theory about how to produce national security. Security has traditionally encompassed the preservation of a nation’s physical safety, the country’s sovereignty and its territorial integrity, and its power position—the last being the necessary means to the first three. States have traditionally been willing to risk the safety of their people to protect sovereignty, territorial integrity and power position. A grand strategy enumerates and prioritizes threats and adduces political and military remedies for them. A grand strategy also explains why some threats attain a certain priority, and why and how the remedies proposed could work.
Our grand strategy has done none of those things (or at least not well), because the particular strategy that we have pursued for more than two decades—primacy, benevolent global hegemony, unipolarity, pick your term—is loathe to choose. Every crisis is a primary concern for the United States. No regional conflict can be handled by regional actors. Every humanitarian disaster, manmade or heaven-sent, demands U.S. intervention.
The list of goals that flows from such a grand strategy is just that—a list—with little or no consideration of how these should be ranked. We must be everywhere. We must do everything. The various strategy documents, meanwhile, are all based on the assumption that primacy is the only reasonable strategy for the United States. Taking the ends and ways as a given, they begin with a force structure (the means), and work backwards. Sometimes they don’t even do that.
Most of us who believe that we can responsibly reduce military spending without undermining U.S. security argue that point from the perspective that our strategy is flawed, and, therefore, that our resources are misallocated. The alternative claim—that our strategy is sound, but we can achieve the same ends with fewer means—is not tenable.
Another Shoe Drops: Solyndra Layoff Was Delayed until after Election Day
The Solyndra story just keeps unfolding. Even as Secretary Chu tells NPR that “no decision we made in the loan program had anything to do with who is investing in this company,” today’s papers report that the Energy Department pressured Solyndra not to announce impending layoffs until the day after the crucial 2010 election. From the Washington Post:
The Obama administration, which gave the solar company Solyndra a half-billion-dollar loan to help create jobs, asked the company to delay announcing it would lay off workers until after the hotly contested November 2010 midterm elections that imperiled Democratic control of Congress, newly released e-mails show….
A Solyndra investment adviser wrote in an Oct. 30, 2010, e-mail — without explaining the reason — that Energy Department officials were pushing “very hard” to delay making the layoffs public until the day after the elections.
The announcement ultimately was made on Nov. 3, 2010 — immediately following the Nov. 2 vote.
More than a month ago, I listed some of the earlier shoes in the unfolding story. But as a friend of mine asks about the Penn State scandal, is this the “other shoe,” or is this story a centipede with lots more shoes to come?
Jerry Taylor and Peter Van Doren ignored the politics and looked at the economics of Solyndra and energy subsidies in Forbes.
Live Stream of Cato’s Monetary Conference
Tune in to a live stream of Cato’s monetary conference featuring Rep. Ron Paul and World Bank president Robert Zoellick, beginning at 9:00 am ET this morning: www.cato.org/live.
Use the hashtag #CMC29 to follow the conversation on Twitter.
A Potentially Fatal ObamaCare Glitch
In today’s Wall Street Journal, Jonathan Adler and I explain how a recently discovered glitch could be the undoing of ObamaCare:
ObamaCare authorizes premium assistance in state-run exchanges (Section 1311) but not federal ones (Section 1321). In other words, states that refuse to create an exchange can block much of ObamaCare’s spending and practically force Congress to reopen the law for revisions.
The Obama administration wants to avoid that legislative debacle, so this summer it proposed an IRS rule to offer premium assistance in all exchanges “whether established under section 1311 or 1321.” On Nov. 17 the IRS will hold a public hearing on that proposal…
Any employer whose employees receive premium assistance through a federal exchange…would have standing to challenge these illegal tax credits and outlays.
Public-interest lawyers could file suit as soon as the IRS rule becomes final and they find an employer that will be harmed. Any firm that doesn’t offer health benefits and that employs lots of full-time, low-skilled, young workers in a state that fails to create an exchange should suffice. A successful challenge would block the law’s employer mandate in that state.
In addition, under the Congressional Review Act, a simple (filibuster-proof) majority vote in each chamber of Congress could send to President Obama’s desk a resolution blocking this IRS rule. Even if Mr. Obama vetoed the resolution (taking personal responsibility for this assault on the rule of law), a future president could still rescind the rule.
According to the IRS notice, the public hearing will take place tomorrow, Thursday, November 17, “at 10 a.m., in the auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. All visitors must present photo identification to enter the building.” Those interested should consult the IRS notice (p. 50938) for more information.
Cry for Argentina
With Obamacare at the Supreme Court, the presidential primary debates in full swing, and the federal government’s continued unwillingness to liberate the economy and thus allow it to create jobs, it’s easy to forget that there’s a world outside America, one with its own economic issues and presidential elections.
Take Argentina, for example, a country near and dear to my heart ever since I studied abroad there nearly 15 years ago. A century ago, Argentina was emerging from oligarchic rule to an ever-liberalizing democracy that was one of the richest countries in the world. By 1930 it had the seventh-largest economy, outpacing fellow new-world ex-colonies like Canada and Australia and attracting waves of immigrants from Italy, Spain, and Eastern Europe. How did a country so rich in natural and human resources fall from that peak to become the butt of economists’ jokes? (There are four types of countries in the world: developed, developing, Japan, and Argentina.)
The answer is the autarkic corporatism that came from the rule of Juan Domingo Peron, imposing an industrial policy that destroyed the burgeoning export-import sector, nationalized railroads, and gave unions all the power they wanted (so much that they even began clashing with Peron – sound familiar?). Combine that macroeconomic insanity—leading inevitably to social unrest and repressive government reactions thereto—with an idiosyncratic ”Third Way” foreign policy and redistributionist welfare schemes, and the jewel of Spain’s former empire came back to the pack of faltering Latin American states.
Wild populist swings of both the left and the right followed, interrupted only by a string of coup d’etats—I recall the syllabus of my Argentine history class read, “primer golpe de estado; segundo golpe de estado; tercer golpe de estado…”—resulting in a Dirty War between the ideological extremes that ended in the tone-deaf military triumvirate’s disastrous excursion in the Falkland Islands. (Case in point: they thought President Reagan would support them over Thatcher’s Britain.) Democracy returned for good in 1983 but, save for a brief illusory period in the 1990s, Argentina’s economic house has never been in order. Recall that the country was a poster-child for hyperinflation in the late 1980s and even now inflation runs north of 20 percent (nobody knows for sure because the official figures cannot be trusted).
After an economic crisis of Great-Depression proportions (labeled simply La Crisis) in the early 2000s gave the country an extremely painful but long-needed correction—unpegging the peso from the U.S. dollar among other long-needed reforms—an accidental president from the south, Nestor Kirchner, began reimposing his brand of Peronism. This included defaulting on sovereign debt, government control of the energy sector, expanded social programs, and rapprochement with the likes of Venezuela’s Hugo Chavez. Deciding not to run for reelection, Kirchner handed the presidency to his wife, Cristina Fernandez de Kirchner, who essentially continued his heterodox policies while governing with an increasingly heavy hand against protestors and the media.
A few weeks ago, Argentines overwhelmingly reelected Fernandez, easily beating back opposition groups that never coalesced into a single movement or candidate. This result wasn’t surprising because the economy is expected to grow by eight percent this year and the middle class has largely recovered from the crisis—though most economists consider the current situation to be unsustainable, with the country eventually headed to a reckoning akin to the one it faced at the end of the ’90s (recall the tragic cycles the country endures).
Argentina provides America a “teachable moment,” to use one of our president’s favorite expressions. Like Argentina has been many times over the last century, the United States is at a crossroads. Will it continue to stand for individual liberty, innovation, and social mobility, or will Americans trade their freedom for ever-larger entitlements and evanescent protections from life’s vicissitudes? As Mary Anastasia O’Grady wrote in a column that we can only hope fails to be prophetic:
On this, the experience of Mrs. Kirchner’s Argentina is instructive. It abandoned free markets, ostensibly in the interest of social justice. The predictable result has been greater injustice, more poverty, and increasing concentration of wealth and power in the hands of the political class and its friends. Efforts to make the economy competitive have repeatedly been defeated even as the standard of living declined.
Argentina tests the theory that democracies have a built-in capacity to correct the overreach of government. Not only has it been unable to extricate itself from the black hole of corporatism, it is getting sucked in further.
Or, as Cristina Fernandez put it on the eve of her reelection, “I don’t know if Obama has read Peron, but let me tell you, it sure seems like it.”
[Not coincidentally to the timing of this blogpost, I will be in Argentina all next week, a working vacation of sorts. I'm currently scheduled for two public talks: in Buenos Aires on Nov. 24 at 7pm at the business/economics university ESEADE on the topic of rule of law and economic development and in Tucuman on Nov.25 at 6pm at the Catalinas Park Hotel at a conference marking the 20th anniversary of the fall of Soviet communism, sponsored by the think tank Libertad y Progreso. Both events will be in Spanish.]
Is Cato Taking the Faculty Productivity Debate National?
From some of the coverage of the release of the new University of Texas report on the productivity of its faculty, you might get the sense that this Friday’s Cato/Center for College Affordability and Productivity conference will be the national coming out party for the faculty productivity debate. As the The Daily Texan writes, echoing an earlier Texas Tribune article:
with elected officials like Florida Gov. Rick Scott praising Texas’ controversy as good for higher education reform and with the Cato Institute hosting a conference called “Squeezing the Tower: Are We Getting All We Can from Higher Education?” this Friday in Washington D.C., this is very much a national debate.
This is—and must be—a national debate, because huge amounts of taxpayer dollars from all levels are at stake, not to mention oodles of bucks from students and parents. But don’t expect the sides to be well settled. Speakers on Friday are likely to offer a variety of opinions on how to hold schools and their faculties accountable, and there will be no simple left/right breakdown. I telegraph a bit of what I’ll be saying in this new Education News interview.
Cato and CCAP certainly want to take this crucial discussion national, and I hope you’ll join us on Friday. Register here!
Congressional Insider Trading: Is It Legal?
Washington has been buzzing for the past 48 hours over revelations that some of Capitol Hill’s best-known lawmakers have been making fortunes speculating in the stocks of companies affected by official actions, typically while in possession of market-moving inside information. Rep. John Boehner (R-OH), Senatorial wife Teresa Kerry and others made bundles trading in health companies’ stocks shortly before Congressional or executive-branch action affecting the companies’ fortunes. After closed-door 2008 meetings in which Fed chairman Ben Bernanke briefed Congress on the gravity of the financial collapse, some lawmakers dumped their own stockholdings or even placed bets that the market would fall. Rep. Nancy Pelosi (D-CA) got access to highly desirable IPO (initial public offering) stock placements, some in companies with business before Congress. And so on. Studies have found that lawmakers as a group reap far above-average returns on their investments—suggesting either that these politicians are among the world’s cleverest investors, or else that they are profiting from inside information. All this has been turned into a front-page issue thanks to Throw Them All Out, a book by Hoover fellow Peter Schweizer, whose findings were showcased the other night on 60 Minutes.
So the question is: is all this legal? While there’s some difference of opinion on the issue among law professors, the proper answer to that question is most likely going to be, “Yes, it’s legal.” As UCLA’s Stephen Bainbridge points out, existing insider trading law, developed by way of a long series of contested cases under the Securities and Exchange Commission’s Rule 10b-5, assigns liability to persons who are not corporate insiders if they are violating a recognized duty of loyalty to those for whom they work. As applied to the investment whizzes of the Hill, this implies that trading on inside information might be a violation if done by Congressional staffers (since they owe a duty of loyalty to higher-ups) but not when done by members of Congress themselves.
It is tempting to approach the new revelations the way an ambitious prosecutor might, trying to stitch together a test-case indictment from, say, the penumbra of the mail and wire fraud statutes bulked up with a bit of newly hypothesized fiduciary duty here and a little “honest services” there. But that’s not how criminal law is supposed to work: for the sake of all of our liberties, prohibited behavior needs to be clearly marked out as prohibited in advance, not afterward once we realize it doesn’t pass a smell test. But we are still free to deplore the hypocrisy of a Congress that has long been content to criminalize for the private sector—often with stiff jail sentences—behavior not much different from what lawmakers are happy to engage in themselves.
Coburn Report on Subsidies for Millionaires
Sen. Tom Coburn’s (R-OK) new report on the various federal subsidies being collected by millionaires deserves applause for not resorting to class warfare rhetoric in making the point that it’s silly for wealthy folks to receive taxpayer handouts:
We should never demonize those who are successful. Nor should we pamper them with unnecessary welfare to create an appearance everyone is benefiting from federal programs.
Coburn says that “this reverse Robin Hood style of wealth redistribution is an intentional effort to get all Americans bought into a system where everyone appears to benefit.” That’s true. Whether it is food subsidies or unemployment benefits, the cheerleaders for federal redistribution schemes would have the public believe that it’s all about “helping those in need” when in fact it’s really about fostering dependency on taxpayers. A dirty little secret that the media typically fails to recognize is that many of the people pushing for these programs stand to financially benefit themselves. And as we have documented over at DownsizingGovernment.org, government programs do a poor job of helping the people that they purportedly serve.
No Compelling Evidence ‘No Child’ Worked
Over the last few days the Wall Street Journal has run two articles suggesting that the No Child Left Behind Act has been somewhat successful. But that’s not supported by the federal government’s own measure, the National Assessment of Educational Progress.
The WSJ’s first article appeared on Saturday, and while focusing on the stagnation of high-achieving students, it asserts that NAEP exams show “dramatic progress—sometimes double-digit increases—for the lowest achievers over the last two decades, especially after No Child Left Behind.”
Last month I debunked the idea that historically struggling groups have seen dramatic improvements under NCLB, laying out the data from numerous NAEP tests. Quite simply, looking at score gains per year, there were many periods before NCLB that saw faster improvements. Below are two more tables from the latest NAEP scores, released a couple of weeks ago. These are for the so-called “main” NAEP, which is not nearly as valuable as the long-term trends exam for seeing historical patterns, but the WSJ cites it and it does contain new information. The results are for the bottom 10 percent of performers.
As always, at what year one could start crediting results to NCLB is debatable. (Actually, you can never simply look at NAEP scores and attribute them to one factor because so many variables influence outcomes.) That date cannot be earlier than 2002, the year the law was enacted, and probably should be 2003, by which time most of the regulations were written and the law began to take real effect. To deal with this problem, the tables include only years that fully include NCLB or do not include it at all. Also note that there are two pre-NCLB time bands for reading because there are no 2000 8th grade reading scores.
Mathematics, 10th Percentile
Reading, 10th Percentile
Once again, there is is no pattern of faster improvement under NCLB than before it. Highlighting periods with greater growth than under NCLB, you can see that in 4th grade math improvements were faster before NCLB than after. In 8th grade math, it’s essentially a dead heat. In 4th grade reading, there’s sizable improvement under NCLB, and in 8th grade reading there’s an appreciable advantage before NCLB.
The second WSJ piece that gives NCLB undue credit is an op-ed from Kevin Chavous. Chavous, a tremendous advocate for school choice, implies that NCLB supplies “accountability” needed to make American kids competitive with their international peers. But as we’ve seen, there’s precious little evidence that NCLB has done anything to improve educational outcomes. Meanwhile, it has cost us a mint, with Department of Education k-12 spending rising from $27.3 billion in 2001 to $37.9 billion in 2011.
Unfortunately, Chavous’s piece seems more aspirational than reality-based, as is often the case in education policy. “We must try to make schools and teachers accountable,” he seems to be saying. “Heaven knows the states won’t do it!”
The need to deal in reality is why Mr. Chavous’ main concern—getting school choice—is so crucial. Government schooling will never be fundamentally changed because those who would be held accountable—teachers, administrators, bureaucrats—have by far the most motivation to be involved in education politics, the greatest ability to organize, and hence the biggest store of political power. Their livelihoods, after all, are at stake. And what do they want? What we’d all probably like: as much pay as possible with as little accountability.
The only way to end employee domination of education is to fundamentally change the system: instead of having politics control schooling, let parents control education money so they can take their children out of schools they don’t like and put them into those they do. Don’t force them to undertake the endless, hopeless warfare of having to form coalitions, try to get politicians’ ears, spur politicians to move and, if they can ever get decent changes, then force them to constantly fight to keep the reforms against opponents with full-time lobbyists and political machines. No, let them vote with their feet, right away, and get their children the education they need.
NCLB is, by most indications, an abject failure, and the very nature of government schooling doomed it to be so.
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